Trends in the Motion Picture Industry Provide Opportunities and Challenges for Accountants: Tax Credits, Crowd Funding and Global Partnerships

By Hall, Linda A.; Bandyopadhyay, Jayanti et al. | Competition Forum, January 1, 2015 | Go to article overview

Trends in the Motion Picture Industry Provide Opportunities and Challenges for Accountants: Tax Credits, Crowd Funding and Global Partnerships


Hall, Linda A., Bandyopadhyay, Jayanti, Mowat, Heather, Competition Forum


INTRODUCTION

Public accountants with an interest or a client base in the motion picture or other entertainment-related industries are well aware of the various business and financial structures and the complicated accounting, reporting and planning for these entities. Complexities exist in utilizing tax incentives designed specifically for the entertainment industry, in using crowd funding as a source of financing production costs, in the accounting for diversified revenue sources and contractual arrangements, and in reporting under Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Practitioners must be aware of recent and in some cases subtle changes in US accounting standards, as well as the impact of international standards on accounting and reporting in a global entertainment industry in the wake of the Financial Accounting Standards Board's (FASB) and International Accounting Standards Board's (IASB) final version of their revenue recognition standard. In this evolving global industry, public accountants and clients have ultimate loyalty to the bottom line rather than any individual nation's accounting rules. All of these factors contribute to an interwoven industry that provides opportunities and challenges for accountants.

Underlying the complexities of accounting and financing in the motion picture industry is that there is no longer a "typical movie." A movie begins with a story and can end up in a movie theatre, on a television network, on an on-demand service, as a distributed video, or all of the above and more, during which time the ownership of the intellectual property evolves depending on the route the movie takes. The group that wrote or adapted the story does not usually sell the story, and the group that sells the story is not usually responsible for the funding, actors, production and distribution network (Young et al., 2008, 2008). It is during each step of this process that a different type of business structure and/or taxable entity is created and often solely for that individual phase of a project.

Larger accounting firms, specifically, KPMG, Price Waterhouse Coopers, Deloitte, Ernst & Young and Grant Thornton, continually publish detailed interpretive guidance on the complex accounting issues facing the motion picture industry (Deloitte, 2013; Ernst & Young, 2011; Grant Thornton, 2010; KPMG International, 2010; Price Waterhouse Coopers, 2014, 2010, 2009). Smaller regional Certified Public Accounting (CPA) firms and individual CPAs procuring new clients in the movie production or distribution industry may find themselves not only addressing accounting and tax treatment of complex contracts and transactions but serving as advisors for appropriate terms of contracts in order to maximize clients' after-tax profits. For example, producers may operate as limited liability company (LLC) to permit tax refunds or any incentives to flow through to individual taxpayers, while at the same time the relevant financing institutions may not prefer to loan funds to LLCs. Additionally, due to differences in state partnership laws in the US, some state tax credits offered may only be applicable to corporations, and thus corporations may then create various LLCs so that the tax credits can be utilized. While non-public production and distribution companies in the entertainment industry may not be required to follow GAAP, presenting financial information necessary for obtaining financing is critical. Experienced accounting professionals are essential in guiding clients through this maze at every turn. This paper addresses three areas of particular interest to accountants: tax incentives and credits in the film industry, the recent financing trend of crowd funding and industry-specific issues in accounting and reporting.

TAX INCENTIVES FOR FILM PRODUCTION

According to the Motion Picture Association of America, the movies and TV industry generates $16. …

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