Joint Venture / Profit Share Audits
We have carried out a number of very interesting joint venture audits in the Record and DVD industries over the past 6 years. A joint venture arrangement is usually governed by an agreement between the parties setting out the ways in which income and expenses are shared by the JV.
In some cases the profit share may vary from one album/DVD to the next. Normally our work would include the following:
- Work to confirm the accuracy and completeness of sales values and types of invoices reported by the JV partner.
- Checks on direct costs charged to the JV partners including manufacturing and distribution costs.
- Checks on other expenses charged including advertising costs, promotion costs, copyright royalties and other royalties to producers etc.
These JV audits have all proved highly successful. Some of the major findings have included the following areas:
- The profit share statement is spreadsheet based and does not add up - some cells have been missed in the calculation and sums due have not been recorded correctly.
- Reserves have been taken in excess of the contractual terms.
- Override royalties have been charged to the JV - however when questioned, the JV partner could not confirm who these royalties were for the benefit for.
- A F of M Royalties charged to the JV - these are payments to American Federation of Musicians for Albums recorded in USA - however the album that is subject of the agreement was not recorded in USA.
- Sound Exchange (Neighbouring Rights income in USA) received by JV partner not shared with client.