Undoubtedly the makers, Tiger Aspect – also responsible for the surprise cinema hit Billy Elliot and Kathy Burke’s Gimme, Gimme, Gimme – have had a lot of success and have made their money. But research has concluded that the UK film and television industry is losing out on attractive investment because it cannot find a common way to recognise revenue and intellectual property rights in its accounts. This is one of the conclusions drawn from last week’s report by Grant Thornton into UK film and TV. In particular it cites problems with the recognition of revenue and rights as the main factors that are holding the industry back. As Granada and Carlton once again look to complete a merger, these accounting problems could be one of the key difficulties for their staff working on the necessary due diligence. ‘At the moment there is poor disclosure of how revenues and rights are recognised in accounts and where they are there are a massive range of different policies being used by different firms,’ says Terry Back, the head of Grant Thornton’s media entertainment group. ‘This leads to a lack of comparability across the sector which makes it difficult for investors to tell the good companies from the bad.’ He added that companies were getting a little more consistent since the publication of a similar report last year but that there was still a long way to go. What’s needed is consistent reporting, according to Grant Thornton, but not all agree. Dave Harries, director of finance at Tiger Aspect, says: ‘Having a policy of consistence will not necessarily make for standardised accounts across the industry. ‘The acquisition of intellectual property happens differently in every company and will be viewed differently by companies. You can have a conservative projection (of IP value) or an optimistic one but my conservative view of our assets will be different from someone else’s.’ The problem however could be exasperated by the introduction of a standard which, in theory, should help the industry. The Accounting Standards Board is currently working on a reporting standard to deal with revenue recognition that will mean that companies cannot recognise income until the benefit has been transferred to the customer. In terms of TV and film, this means firms cannot account for revenues until the film or program has been delivered to a distributor or broadcaster. ‘Lumpy’ revenues is an issue that the ASB has recognised could cause problems and is looking for a way to help solve but ‘there will be a lot of head scratching at the ASB before we get the final standard through,’ according to Back. Accounting standards are also causing problems in terms of film and TV producers recognising their property rights. FRS 10, which relates to goodwill and intangible assets, bans capitalising on internally generated intangible fixed assets. It was brought in to stop the placement of brand values in the balance sheet that had become a common occurrence in the nineties, but has unfortunately incorporated IP rights. ‘Under FRS 10 film and TV companies can’t capitalise the costs that went into the production of a film, and this has meant that there really isn’t a common ground on how intellectual property rights should be treated,’ says Back. ‘The logical move would be to treat it as an intangible fixed asset but that would require a change to FRS 10.’ The report wants to see the introduction of a standard of recommended practice for the UK film and TV industry, but faces many obstacles before this can happen. Firstly it would likely need a change to FRS 10 to allow rights to be recognised as intangible fixed assets, which could be a tough sell to the ASB. This isn’t helped by the fact that there is no specific trade body for finance in the UK film and TV industry and discussion so far has largely been centred round occasional, irregular meetings of the 20-odd larger companies. There is also a good deal of disagreement about exactly what needs to be done and could see a lot of infighting along the way. ‘My opinion is that a standard of recommended practice at a macro level would be sensible, but it should not boil down to a micro prescription level,’ said Harries. ‘I have never been an advocate of this and it don’t see it fitting well in this industry.’
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Smith & Williamson has added Jim Clark and Philip Marsden, of Marsden Clark Corporate Finance Limited, to its corporate finance team.