The Film Business – How Do Independent CPA’s Fit In?

MAY 1, 2009 LEAVE A COMMENT

CPA’s who want to service the film industry as auditors in some way have several routes:

– prepare an opinion of the Estimated Tax Credits from the Film Budget in ‘prep’,

-  prepare audited statements of the Cost Report in post-production for the Tax Credits,

- service the administration of the tax credit with the State for the Production,

- claw through the interim costs to see if the Estimated Tax credits are in-line, etc.

Or, work as a Production Accountant.

To do any of these tasks, as a professional, you need to get a feel for the rapidity of the film production business from and the responsibility and authority expected fom you. The weekly petty cash is about $50,000 a week, the weekly payroll is anywhere from 0 to $800,000 for the crew alone, etc – so there’s no time to train or figure out systems, it’s got to be right first off the mark.

FILM ACCOUNTING SYSTEM:

That system has been worked out over the years and that’s what is called Film Accounting – it’s basically the same system used throughout the film production industry internationally. None of it is brain surgery, but the rapidity of the life cycle is unique – in a few weeks/months you start with nothing, open a bank account, find a studio, order furniture, hire crew and cast, buy/rent everything, finish shooting, sell/return everything, pay off whatever, close bank accounts, turn off the light – the door slams on the back of the last man/woman standing – the film accountant. A FULL understanding of the film accounting system is vital to external auditors who need to move quickly to balance their chargeable hours to a competitive field.

BOOKKEEPING-REPORTING-AUDITING:

Throughout the Film Accounting process the multiple details of bookkeeping, reporting and auditing (ensuring that the transactions are legal and ethical), can get a little overwhelming, especially if you’re not ready. If you have 3 or 4 weeks before the shooting starts, to go from an empty room to a fully functioning office, you need to have a system that is drilled to the level of habitual. There is nothing on a ‘Woman Scorned’ when compared to a producer who doesn’t get his/her cost reports on time (the Weekly Cost Report compares every line item in the budget against current Estimated Final Cost, and all variances accounted for). There are a number of ‘tricks-of-the-trade’ in managing that report; remember, it goes to all bosses everywhere.

THE FILM ACCOUNTANT’S PRODUCT:

The film accountant’s Boss is the Financier(s). That would include the funders as well as lenders and the bonding company. It’s a little difficult sometimes, because the Producers are in direct communication with the Film Accountant and technically have the right to fire him/her. I could tell you stories – actually, I do tell you real stories how to handle that situation if it gets noisy. The Weekly Cost Report, more than anything else, is the ‘product’ of the Film Accounting Department. If all systems are ‘in’, the result is a meaningful Cost Report that the Producers and FINANCIERS take to heart – the bond company has the right to take over the production and their most used document is the weekly cost report.

WORKSHOPS #1 and #2:

The first workshop drills the film accounting system. The second gives you a look at the building blocks that comprise what you will be auditing – the costs as compared to budget. Knowing how those costs are tabulated, along with a system to capture certain types of costs with Free Fields, really gives you an understanding of where the producers are coming from – not always on the up-and-up. This is a vital area for both aspiring film accountants and for external auditors.

For example, here’s something I’ve seen:

The producer wants more tax credits – one way of increasing those tax credits by ‘flipping’ – an actual example is the producer puts a Story Consultant in the budget for $100K, then FUNDS the $100K from Company A, then has the production pay $100K to a local State shell Company B, then has Company A invoice Company B for Management Fees of $100K. (or, more nefariously, has Company B make advances to someone the producer actually is doing another deal with entirely). This is a ‘flip’ or ‘turnaround’ that could be viewed as a sham and is fairly common.

SMALL GLOBAL VILLAGE:

The film industry is a small global village. I have seen line producers, 1st AD’s, production accountants, etc. keep working in spite of a downward spiral of bad habits and poor performance – simply because they already have a resume and others have ‘heard’ about them. It’s just the way it is. Almost no attention is paid to self-promotion, and even if a face-to-face meeting is finagled, the ‘I love you baby’ routine is actually real – so, you’re in a quandary that you have to solve. The only way I know of to solve it is to get started by learning the TRADE from the ground up and do the workshops. I say, with some humility, that I know the bond companies, I know the bigger international Tax Admin Companies, I know a few VP Finances at the Major Studios, quite a few people on the food chain at various levels, etc – simply by stating my name you’ll at least get an ‘Oh yeah, I know John’ – of course, I can’t promise anything, but I’ll always back you up as one of my attendees if called.

A COMMENT TO EXTERNAL AUDITORS:

It’s going to be a shark fight very soon for the simple tax credit audits. Really, to just do the audit is a meat grinder – stick the meat in one end and out the other end comes hamburger. But, the guys who take the extra step to learn what is really needed by the studios and producers, and provides what’s needed, will be the ones who get the callbacks. Out of State studios will need someone to set up a Prod Co (a shell company used only for the production), they’ll need access to an inexpensive lawyer for simple in-State assignments, deals of whatever kind, they’ll need advice on how to estimate the tax credit and what’s current with the State decisions, the banks will want a letter of opinion that’s accurate and quick, the producers and banks will want an interim report of the Estimated Tax Credits to make sure everything’s in-line, etc. The only way I know that you can do that is to get real familiar real fast with all film budgeting and cost reporting and general ledger formats.