Internal Audit

Detailed Analysis of an Audit of Cinema, Roles of the Auditor, and Receipts to Verify

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 now provide the opportunity to watch movies, and in some metropolitan cities, they also offer restaurant and bar facilities. Hence, maintaining proper accounts of cinema halls has become of prime importance, and regular audit of cinema must be conducted regularly. Cinema halls earn revenue from ticket sales, movie distribution, collection from the canteen, advertisements, and rental income.

Purpose of cinema audit

The following are the goals of doing a cinema audit

• Comparing the total financial gains to the finalised investments and other contracts.
• Verifying precise cash flows
• Comparing the account’s precise balance to the financial records that have been supplied.
• The preparation of records of bills and invoices issued without the prior conclusion of a contract or order, specifying the invoice issuer, invoice number, invoice issuing date, amount, and title, as well as the compilation of records of concluded contracts or orders, relevant issued bills, as well as invoices that are related to the production of a film as of the audit date.
• Confirming accurate accounting to grant money the producer received.
• Checking to verify whether any corrective action mandated and suggested by the association of the Indian Film Industry has been carried out.

Role of auditor in cinema auditing

The auditor has to verify,

1. Regarding the sale of tickets, an auditor has to verify if,

• The tickets are bound and serially numbered.
• The tickets belonging to the same class are always issued serially, for all the shows, throughout the week.
• The tickets issued through booking bear a different serial number.
• The unsold stock of tickets is prepared for each show, for each class of tickets and is reconciled with the Entertainment Tax paid.
• Entrance to each show is allowed only through the tickets.
• The complimentary tickets or free passes are issued only under due authorisation.
• The daily statements prepared for the sale of tickets are vouched to verify the entries made in the cash book.

2. While verifying the receipts through advertisements, the auditor has to examine the agreements with the advertisers. Vouch for the collection made and the expenditure incurred on advertisements. If any expenditure relating to advertisement is expensive, the same may be treated as deferred revenue expenditure.

3. While verifying the collections through restaurants, the auditor has to verify if the cinema runs the restaurant; the auditor may verify the purchase and sale of various food items and evaluate the efficiency of the internal check in running the restaurant. If a fixed sum or a percentage of the collection is received annually as per the agreement with third parties for running the restaurant, the auditor may examine the terms of the agreement and vouch for the receipts.

4. While verifying the payments to distributors, the auditor has to examine the terms of the agreements with the distributors and vouch for the payments made against the bills raised by the distributors.

The auditor has to ensure that the advance paid to the distributors for a film is either adjusted against the amount due to them or returned by them after running 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 considered irrecoverable. The auditor may apply the usual procedures to audit the other areas.

What aspects of a cinema audit must an auditor verify?

An auditor in the manners must verify the income from diverse sources stated below-

• He must confirm the regulation governing ticket prices for various classes, benefit performances, free passes, discounted tickets for reservations made by the school and college student groups, etc.
• Each ticket needs to be serially numbered; an auditor must ensure it during the movie audit.
• Deposits into the bank must be made daily.
• An auditor must confirm the daily return for the sale of tickets for various performances and classes using counterfoils from previously sold tickets.
• The auditor should verify the entertainment tax^[1] collected from ticket sales while conducting the cinema audit.
• The auditor is responsible for ensuring that the Entertainment Tax, derived from ticket sales, is consistently and on time deposited with the Government.
• The auditor must confirm the parking rates for different vehicles.
• Auditors should check the money collected for parking from the issued slips during the cinema audit.
• An auditor must review the contract between clients and contractors if parking and canteen are given to a contractor.
• The receipt book and the cash book should be used to confirm the payment made to the contractor during the audit of the movie theatre.
• A cash book and receipt book should be used to verify and check the amount paid for advertising.
• The cinema or movie theatre space may occasionally be rented out. Additionally, an auditor should confirm the rent paid using the lease agreements, the receipt book, and the cash register.

Receipts to verify in cinema auditing

In a cinema audit, the following listed movie hall receipts must be verified-

• Money received from ticket sales.
• Fees were gathered to produce slides, short films and ads.
• Receipts for lease rent payments that third parties gather from the numerous stalls.
• Funds were raised by selling food products at a restaurant owned by a theatre.

Conclusion

In a cinema audit, examine the unadjusted balance out of advance paid to the distributors against film hire contracts to see that they are good and recoverable. If any film regarding which an advance was paid has already run, it should be enquired why the advance has yet to be adjusted. The management should be asked to make a provision regarding advances considered irrecoverable.

The arrangement for collection of the share in the restaurant income should be enquired into either a fixed sum or a fixed percentage of the taking that may be receivable annually. If the cinema runs the restaurant, its accounts should also be verified. The cinema audit should cover the sale of various items of foodstuffs, purchase of foodstuffs, cold drinks, etc.

While verifying the receipts through advertisements, the cinema auditor has to examine the agreements with the advertisers. Check the collection made and the expenditure incurred on advertisements. If any expenditure relating to advertisement is expensive, the same may be treated as deferred revenue expenditure but not exactly capital expenditure.

Also Read: What is a Virtual Audit and How Are They Done?