Post Production & Project Close

It is not uncommon to take up to 3 years from delivery of a production before the Special Purpose Vehicle (SPV) company is closed down.  During this time the Production Accountant is likely to have moved onto other productions.  The Production Accountant can either work on both productions at the same time, or hand over to a Post Production Accountant.

Costs will continue to be incurred until delivery of the production and after this time there will always be queries to deal with and suppliers who invoice late.  Until the production is finally closed the monthly, quarterly and annual returns continue to be required to be submitted.  It is still vitally important to monitor the costs during this stage, ensuring the final cost report reflects a true and accurate cost of the production.  The Post Production Accountant needs a good knowledge of production and post production in order to deal with queries arising, to understand the technicalities, resolve disputes and provide accurate cost reports.  A close working relationship with the post production supervisor is also key to doing the job well.

When the production accountant hands over to the post production accountant after the shoot, the following should be detailed:

• Balance Sheet – with supporting documentation and reconciliations for each account
• Cost report – notes against all remaining estimates to complete
• Purchase Orders – explanations for all unmatched POs
• Outstanding queries – full details / correspondence for current state of affairs
• Access to all systems and files

Where possible all production bank accounts should be closed at the end of a production, with the balance on the account usually being transferred to the production company’s main bank account.

Generally a final cost report can only be produced when all outstanding supplier queries have been resolved, all insurance claims finalised and all floats have been accounted for. Finance Executive approval is required for any journals which move items off balance sheet. Examples of such entries requiring approval are petty cash write offs and fixed asset write offs (or transfers of fixed assets to the main company at valuation).

A final cost report should not include any costs to completion (any un-invoiced liabilities should appear in the cost report as accrued costs) and a list of accrued creditors must be provided so that other parties are able to identify who is owed further money.

Final paperwork

In addition to the ‘bible’ and final cost report there may be further final paperwork required. The finance contract will usually define what is required but the following are examples of additional paperwork that may be required from the accounts department:-

1) A signed statement from the Accountant to the effect that they consider the cost report to be an accurate representation of the income and expenditure on the project and that the cost report is in accordance with the accounting records.

2) An independent auditor’s opinion on the accuracy of the final cost report.

3) A breakdown of expenditure by location and information on the number of people employed by location (this is usually required where a regional grant makes up part of the funding).

4) A certificate from the BFI which confirms that the production meets its criteria with respect to it qualifying as a British film either as a Schedule 1 film or as a co-production.  In both cases it is necessary to complete an application form to BFI. The Schedule 1 film requires some financial information such as UK spend and non-qualifying spend. The co-production form requires a detailed spreadsheet of income and expenditure by territory. The BFI usually require a interim certificate before production begins based on the budget and funding plan and they review this to make sure that their requirements are met before giving a preliminary approval. At the end of production final certificate from the BFI is important because without it, UK tax relief cannot be claimed and overseas co-Producers are unable to access their equivalent tax relief.  The tax relief claim is made through the company tax return to HMRC.

5) A schedule of artists/writers’ residuals. Many broadcasters require an excel spreadsheet which they can use to calculate the residuals due in the event of additional transmissions of the Programme or overseas sales. The entitlement to residuals in the UK is set out in the Equity/PACT production agreements.

www.pact.co.uk

Project closure checklist.xlsx

A production audit may be needed for one of the following reasons:-

1) The production company requires an audit;
2) One of the funding bodies requires an audit;
3) An audit is required in order to qualify for a tax break (such as UK film tax relief) or to ensure that the production meets the terms of a co-production agreement.

Such audits must usually be performed by registered auditors and they should generally be performed by auditors who specialise in the film/TV industry and are therefore familiar with the regulations and how they should be interpreted.  In cases 2 and 3 it is important to ascertain exactly what the auditor is being required to certify; the contract with the funding body will usually detail exactly what is required.

At the start of a production which is to be subject to such an audit it is important to identify information that needs to be made available to the auditor so that systems can be put in place to make that information easily available. For example, the following information may be needed:-

1. Nationality of members of all the production crew and staff including those used by the post production facility (crew start forms should ask for nationality and should be supported by a photocopy of the person’s passport).
2. An analysis of expenditure by country or region (at the start of a production it may be worth setting up separate departments in the accounting software to enable expenditure to be easily broken down as required).
3. A cost report in a set format (where an application for a grant or for co-production status is made, the BFI, HMRC or the funding body usually require the audited cost report to be in the same format and use the same budget headings as the application form. In such a circumstance, it is important to set up the chart of accounts in a way that makes it easy to report in the required format).
4. Non-qualifying expenditure. Tax law has strict rules as to which expenditure can qualify for the tax relief, so the Production Accountant needs to be familiar with the regulations so that non-qualifying expenditure can be easily identified. Where expenditure does not qualify, the Production Accountant must consider whether this has any possible impact on key ratios which must be met to qualify for the tax relief. For example, the tax relief may require that UK qualifying expenditure must be at least 10% of worldwide qualifying expenditure.

The following is a checklist of items for the statutory accounts that are likely to be required by the Statutory Accountant either at the year end or at the close of the project:-

1) A full ‘bible’ produced from the accounting records and as at the year-end date or the close of the project as follows:-

1. a) Trial balance
   b) Full nominal ledger
   c) Aged debtors listing and full sales ledger
   d) Aged creditor listing and full purchase ledger
   e) Year end bank reconciliation (incl bank statements)
   f) Full audit trail listing all production postings
   g) List of outstanding purchase orders
   h) Details of any other balance sheet balances

2) A cost report based on the year end/closing ‘bible’ with up to date projections of costs to complete (it may be necessary to update the costs to complete in the year end cost report several months after the year end to reflect the most up to date projections)

3) All supporting documentation such as the invoices, bank statements and payment records

4) A list of any contingent liabilities (i.e. potential liabilities which might arise from, for example, legal action that has been threatened).

5) Copies of contracts, including the Production Services Agreement or Interparty Agreement.