Cinema Audit Services
The number of Cinema halls has increased in our country in recent years. The primary aim of a cinema hall is to provide entertainment to the public. The cinema halls in the current time are now not only providing the opportunity of watching movies but in some metropolitan cities, they also offer restaurant and bar facilities. Hence, it has become of prime importance to maintain proper accounts of cinema halls, and its regular audit must also be conducted regularly. Cinema halls basically earn revenue from the sale of tickets, distribution of movies, collection from canteen, advertisements, and rental income.
What must be verified by an Auditor in a Cinema Audit?
An auditor needs to verify the income from various sources in the following mentioned manner:
- He needs to verify the rules regarding rates for a different class of tickets, benefit shows, free passes, concessional tickets for booking made to groups of the student of schools and colleges, etc.
- An auditor during the cinema audit must ensure that each ticket must be serially numbered.
- Daily collection must be deposited in the bank.
- An auditor needs to verify the daily return for the sale of tickets for different shows and different classes from counterfoils of sold tickets.
- The auditor during the conduct of the cinema audit should verify the amount of Entertainment Tax that is collected on account of the sale of tickets.
- The auditor shall ensure that the Entertainment Tax that is collected on the sale of tickets must be deposited with the Government within the due time without any fail.
- The auditor needs to verify the rate of parking for each class of vehicle.
- Auditors during the cinema audit should verify the cash collection on account of parking from the issued slips.
- If parking and canteen are allotted to a contractor, an Auditor needs to examine the contract between clients and contractors.
- The payment that is received from the contractor during the cinema audit should be verified from the receipt book and the cash book.
- The payment that is received on account of advertisements should be verified and examined with a cash book and receipt book.
- The premises of the cinema or theatre may at times be let out on rent. An auditor should also verify the rent received from the rental agreement, receipt book and cash book.
What Points Must be Considered while Conducting Cinema Audit of Expenses?
While conducting Cinema Audit of expenses, the following points must be considered:
- An auditor must verify the film hire charges from the terms and conditions of the agreement.
- Accounting for the film purchased and the film hired must be done accordingly.
- Film purchased but not shown needs to be accounted for in a proper way.
- Operating expenses must be thoroughly checked.
- The outstanding liabilities must be duly provided in the books of accounts.
- Adequate depreciation must be provided on furniture & fixtures of cinemas and theatre. The rate of depreciation must be more than the normal reduction that is provided in other businesses.
- The stock of various items must be verified.
- Payment of revenue expenses such as salary and wages, electricity, stationery and printing, and purchase of various items that must be vouched with available supporting of vouchers.
- Revenue and capital expenditure shall be treated accordingly.
- All the books such as cashbook, petty cash book, and ledger accounts need to be examined appropriately.
What is the Purpose to Conduct Cinema Audit?
The purposes of conducting a cinema audit are as follows:
- Verifying the number of financial proceeds against the concluded investment and other contracts.
- Confirming accurate cash flows.
- Determining the exact balance of the film production account against the presented financial documentation.
- Compiling the records of concluded contracts or orders and the relevant issued bills and also the invoices that is related to the production of a film as at the audit date, specifying the invoice issuer, the invoice number, and the invoice issuing date, amount and title, and preparing records of bills and invoices issued without the prior conclusion of a contract or order, specifying the invoice issuer, invoice number, and the invoice issuing date, amount and title.
- Confirming correct accounting for grant funds obtained by the producer.
- Verifying whether any ordered corrective actions indicated by the Association of Indian Film Industry have been implemented.
What are the Areas Covered for Conducting Cinema Audit?
The following areas must be covered while conducting Cinema Audit:
Audit of Receipts from Daily Show Collections
For the audit of receipts from daily show collections for the purpose of cinema audit, the following steps must be involved:
- That the entrance to the cinema hall is permitted only through printed tickets.
- Tickets are numbered serially and bound into the books.
- That the number of tickets issued for each show and class is different.
- For the purpose of advance booking, a separate series of tickets are issued.
- The inventory of tickets is generally kept in proper vouchers.
- If the tickets are issued through the computer audit, it is done in its best to ensure its reliability and authenticity of the data generated by it.
- A system should be provided at the end of each show a proper statement should be prepared, and the cash collected must be tallied.
- Vouch for the entries in the cash book with respect to the cash collected on the sale of tickets for different shows on a reference to daily statements with the record of tickets issued for the various shows held.
- The cash collected must be deposited in banks partly on the same day and the rest on the next day depending on the available bank facility.
- Verify that proper record is kept for free passes and the same is issued under proper authority.
- Reconcile the amount of collected Entertainment Tax with the total number of tickets issued for each class.
Income from Advertisement
Verify the charges that were collected for advertisement slides and shorts by reference to the Registrar of slides. It also includes shorts exhibited kept at the cinema as well as with agreements entered into with advertisers in this regard.
- The arrangement for a share in the restaurant income must be enquired into either a fixed sum or fixed percentage of the taking may be receivable annually.
- If in case the restaurant is run by cinema, its account must be definitely be checked.
- Verify the basis of other incomes that are earned like car and two-wheeler parking and display windows etc.
- Vouch for the expenditure that is incurred in advertisements, repair, and maintenance. No part of this type of expenditure must be capitalized.
- Vouch for the expenditure incurred on electricity expenses and publicity of pictures etc.
- Confirm that the depreciation on the machinery as well as the furniture is charged at appropriate rates which are higher, as compared to those applicable in the case of other businesses with respect to similar assets.
- Vouch for the payment of film hire with regards to agreement with the distributor or producer.
- Examine all the unadjusted balance out of the advance that is paid to the distributors against film hire contracts to check that they are excellent and recoverable. If any film with respect to which an advance was paid has already started, it will enquire as to why the advance was not adjusted. The management must be asked to prepare a provision with respect to advancements that are considered irrecoverable.
What are the Receipts that must be Verified in Cinema Audit?
The following mentioned receipts of the cinema hall must be verified in cinema audit:
- Cash collected by way of sale of tickets.
- Charges that are collected for the purpose of advertisements, short films, and slides.
- Receipts of lease rents that are collected from the various stalls taken by third parties.
- Collections that are made through the sale of food items in a restaurant that is run by cinema.
What is the Role of Auditor in Cinema Audit?
The auditor has to verify the following aspects:
Regarding Sale of Tickets
The auditor needs to verify if:
- The tickets are bound and also serially-numbered.
- The ticket that belongs to the same class is always issued serially for all the shows throughout the week.
- The tickets that are issued through advance booking bear a different serial number.
- The unsold stock of tickets is made for each show, for each class of tickets and is then reconciled with the Entertainment Tax paid.
- The entrance in each show will be allowed only through valid tickets.
- The complimentary tickets or concessional or free passes are issued only under due authorization.
- The daily statements that are prepared for the sale of tickets are vouched to verify the entries that are made in the cash book.
While Verifying the receipts through advertisements
The auditor, while verifying the receipts through advertisements, has to examine the agreements with the advertisers. Assure the collection made and the expenditure that is incurred on advertisements. If any expense with regard to the advertisement is expensive, the same can be treated as deferred revenue expenditure.
While verifying the collections through restaurants
While verifying the collection via restaurants, the auditor has to verify if the cinema runs the restaurant. He may also confirm the purchase and sale of various food items and evaluate the efficiency of the internal check, in the functioning of the restaurant. If a fixed amount of sum or a percentage on collection is received annually as per the terms of agreement with third parties for running the restaurant, the auditor may examine the terms of the contract and vouch for the receipts.
While verifying the payments to distributors
The auditor during verification of payments to distributors has to examine terms of the agreements with the distributors. They may also vouch for the payments made against the bills raised by the distributors.
The auditor, in general, must ensure that the advance paid to the distributors for a film is either adjusted against the amount due to them or has been returned by them after running of the film. If the amount to be received remains outstanding for an extended period, the auditor has to verify that they are excellent and recoverable, if not; a provision is to be made for the amount which is considered irrecoverable.