A Generally Accepted Accounting Principles (GAAP) audit offers numerous benefits beyond just compliance for those in entertainment — it enhances the credibility of a company’s financial statements, supports strategic decision-making, mitigates risks and meets stakeholder (or lender) expectations/requirements. In the fast-paced world of entertainment, where financial dynamics are as dynamic as the trends shaping the industry, a GAAP audit can also enhance stakeholder confidence in a company’s financial practices.

When it comes to ensuring the accuracy and reliability of a company's financial statements, a professional audit performed by a firm with specific industry expertise is indispensable.

As companies evaluate whether to pursue an audit, there are several things they should consider:

1. WHY WOULD I PROACTIVELY SEEK OUT AN AUDIT OF MY COMPANY’S FINANCIALS?

Many stakeholders, including investors (current and prospective), and business partners, expect audited financial statements. For entertainment companies, this is particularly crucial as the industry sees frequent high-value transactions and partnerships. A GAAP audit meets these expectations and can be a requirement for securing future financing, attracting future investors or forming strategic partnerships. It demonstrates your commitment to financial transparency and accountability, and adherence to appropriate industry and accounting standards.

Furthermore, if a company is considering a future merger, acquisition or sale in the in the near or distant future, audited financial statements are often a prerequisite. In entertainment, where the valuation of creative assets like film rights and musical compositions plays a critical role, robust financial audits are indispensable. A GAAP audit ensures that financials are in order and equips potential buyers or partners with the confidence they need to proceed with a transaction.

2. CONSIDER THE VALUE OF INDUSTRY EXPERTISE

As you are well aware, the Entertainment Industry is unique and has its own set of regulations and standards. An auditor with entertainment expertise is well-versed in these specific requirements and can tailor their audit approach to suit the specific needs of the business. GHJ's Audit and Assurance Practice, with its deep roots in entertainment, aligns its audit services to address the nuances of film productions, music royalties, and digital content distribution. This results in a more efficient and effective audit process, saving company time and resources.

3. AN AUDIT IS MUCH MORE THAN “TICKING AND TYING” OUT NUMBERS:

An audit performed in accordance with Generally Accepted Auditing Standards (GAAS) is systematic and thorough, and involves the following:

• Initial Planning: Understanding the business, industry and specific audit needs.
• Risk Assessment: Identifying potential risk areas within the business’ financial statements and design.
• Fieldwork: Conducting detailed tests (specifically tailored to address the risks identified above) and gathering evidence to support the financial data.
• Review and Analysis: Evaluating findings, discussing them with management and ensuring compliance with relevant standards.
• Reporting: Delivering (and often assisting with the drafting of) a comprehensive audit report that outlines not only the company's balance sheet and operations for the period under audit, but also significant accounting policies, required specific disclosures and reporting on any findings and recommendations.

4. IT TAKES TIME

No two audits are the same and timing depends on a variety of factors, including the complexity of the company, availability of resources and quality of available supporting documentation. For entertainment companies, where schedules can be highly variable and contingent on production timelines, this flexibility is crucial. The process of conducting a financial statement audit can take 1-2 months and includes initial planning, detailed testing procedures, partner and quality control review and company approval of the final audited financial statement package.

5. NOT ALL CPA FIRMS ARE THE SAME

Not all CPA firms are the same and choosing the right firm should go well beyond the fee quote. The right firm for a company will depend on various factors including size, industry specialization, reputation, quality of service, technological capabilities and fit with the company’s culture. For an entertainment firm, it is essential to choose a CPA firm that understands the nuances of the industry, from royalty agreements to digital revenue streams. At the end of the day, the right Firm should feel like a long-term business partner whose services extend far beyond an annual audit.

To learn more about how GHJ helps forward-thinking, entrepreneurial organizations with compliance, reporting and strategic planning, please reach out to GHJ’s Audit and Assurance Practice. To learn more about how entertainment industry professionals can set themselves up for success, please reach out to GHJ’s Entertainment Practice.