The way in which financial performance is measured in the UK film and television industry should be given a total overhaul, according to a new report from business and financial advisers, Grant Thornton.
The report entitled "What happened next'", reviews the accounting policies of 177 UK film and TV companies and concludes that accounting by distributors and production companies is often poorly disclosed and not consistent across the industry. The report is a follow up to "What do we tell the shareholders'", published last year, in which the discrepancies in the ways these companies report their financial affairs were first revealed.
Terry Back, co-author of the report and partner in Grant Thornton's media and entertainment group comments, "Since last year's report there have been a number of major corporate failures in the media sector and elsewhere. In many of these cases, the collapse came as a complete surprise to investors and it begs the question; could these events have been foreseen with different accounting disclosures by the companies involved'"
Many investors still do not understand the way that profits and losses are recognised in the film and television sectors. Perhaps we should now be questioning how relevant conventional profit and loss account and balance sheet reporting is to those that produce and exploit Intellectual Property Rights (IPRs), and the investors in those businesses. Most commentators agree that successful IPR financial management is closely linked to successful cashflow management. Should we be developing a new type of primary cashflow statement in order to report the financial performance of film and television companies'"
"The current accounting standard which applies to the recognition of intangible assets does not address film and television rights adequately and we urge the Accounting Standards Board (ASB) to amend it now ahead of harmonisation with international accounting standards in 2005."