What is a Pre-Audit?
Every tv, film, commercial, video game or other project approved to receive an incentive of any kind will need an audit, agreed-upon procedures, examination, or review of its expenses before the tax credit or incentive is approved and issued. These checking and verification procedures are performed by an independent CPA approved by the relevant state or authority, or by a state authority itself.
The CPA or auditor will select expenses to be examined from the full list of individual costs that were incurred during the pre-production, production and/or post-production of the project. Any expense could be selected. They could be selected on a random basis. Or, they could be selected based on materiality. Or, based on criteria mandated by the state authority.
The auditor will ask for full documentation for the expenses selected which could include: vendor invoice, canceled check, purchase order, contract, deal memo, payroll register, proof of residency, proof of citizenship, proof of location incurred, allocation methods, overhead incurred, and more.
Importantly, if the auditor finds exceptions in the testing phase, then several things could occur: testing could be expanded and include more items, costs could be disallowed, exceptions could be prorated over the entire population of expenses. These procedures certainly will slow down your receiving the incentive or credit. In addition, the credit amount you were expecting can be lowered.
You want every dollar of incentive to which you are entitled. It’s important to your bottom line, and it may have been the reason you shot in the chosen location.
DB&A’s secret sauce is two-fold: Maximizing the credit amount approved with the original application. And maximizing the amount of the actual credit based on costs incurred and approved by the audit.
During our pre-audit phase, our team of former auditors will:
- Scrutinize, prep, examine and organize the project’s expenses
- Any questionable costs will be re-documented or withdrawn
- Assemble them in a manner that will survive most auditor’s examinations
- Make sure that additional supporting documentation will suffice the auditor’s questions
- Clear exceptions and/or bring them to your attention
- Limit the exposure of your financial, management and production teams
Make no mistake, our mission here is to get every cost to be eligible, and to find every cost, being as creative as possible in that mission.
After we’ve finished our Pre-Audit, we will coordinate all dealings with the CPA/Auditor. We will be the first line of audit defense.
We have found that the CPA firms and auditors much prefer having DB&A involved in the examination engagement. They know that what they are supplied will have been pre-vetted. We are able to answer questions, prepare questionnaires addressing internal controls, and help format financial statements for state submission.
All of our procedures will streamline the audit process, provide efficiencies, maximize the incentive, and get you to your cash faster.
Dave Bowers & Associates is a specialized firm offering highly unique services to film & television production companies, television networks, film studios, content providers, digital distributors, and video game companies