Hollywood Accounting
Note from Jeffrey : This section highlights major FASB and GAAP concepts which should be applied to all movie and film projects based on current Hollywood Accounting standards.
To review abuses of Hollywood Accounting standards and their misapplication please visit Hollywood Accounting - Case Studies
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AICPA 00-2 AKA SOP 00-2
The AICPA issued new accounting guidance for the film industry in June, 2002 Statement of Position 00-2, Accounting by Producers or Distributors of Films replaced the requirements in FASB 53, Financial Reporting by Producers and Distributors of Motion Picture Films.
Since FASB 53 was issued nineteen years ago, the film industry has changed significantly: new media, such as video, cable, laser discs and pay-per-view television, have contributed to its revenues and required concomitant changes in accounting rules.
Although FASB 53 was outdated and new standards for motion pictures were needed, it already had a full agenda. So the board referred the project to the AICPA’s AcSEC, which deals with industry-specific items.
Among the changes from FASB 53 were:
advertising expense for films will no longer be capitalized
film studios will have a maximum of 10 years to amortize films
abandoned projects and excess overhead must be shown as an expense
SOP 00-2 defines “films” as feature films that include live action and animated segments, television specials, television series and similar products that are sold, licensed or exhibited, whether produced on film, videotape or digital or other video recording format.
Experts predict that big studios will be impacted since advertising will be recorded as an expense even before a movie is released.
FASB 53
NEWS RELEASE 6/15/00
FASB Rescinds Statement on Motion Pictures
Norwalk, CT, June 15, 2000
FASB issued FASB 139, which rescinds FASB 53 on financial reporting by motion
picture film producers or distributors. The Statement defers to a Statement of
Position developed by the AICPA.
A business that is a producer or distributor of films and that previously
applied FASB 53 is now required to follow the guidance in the AICPA's Statement
of Position 00-2, Accounting by Producers or Distributors of Films.
This Statement and the AICPA's Statement of Position are effective for fiscal
years beginning after December 15, 2000.
When FASB 53 was issued in 1981, the majority of a film's revenue resulted from
distribution to movie theaters and free television.
Since that time, extensive changes have occurred in the film industry. Home
video, satellite and cable television, and pay-per-view television have come
into existence, and international revenue has increased in significance.
Because of these changes, considerable variations in the application of FASB 53
arose. This new Statement of Position will once again bring harmony to financial
reporting for motion picture films.
FASB 139 also amends FASB 63, Financial Reporting by Broadcasters, to indicate
that a broadcaster is required to apply the guidance in SOP 00-2 if it owns the
film (program material) that is shown on its cable, network, or local television
outlets.
It also amends FASB 89, Financial Reporting and Changing Prices, and FASB 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of.
FASB 63
Financial Reporting by Broadcasters (Issued 6/82)
This Statement extracts and modifies the specialized accounting principles and practices contained in AICPA Statement of Position (SOP) 75-5, Accounting Practices in the Broadcasting Industry, and establishes standards of financial accounting and reporting for broadcasters. Exhibition rights acquired under a license agreement for program material shall be accounted for as a purchase of rights by the licensee. The asset and liability for a license agreement shall be reported by the licensee, at either the present value or the gross amount of the liability, when the license period begins and certain specified conditions have been met. This Statement also establishes standards of reporting by broadcasters for barter transactions and network affiliation agreements.
FASB 139
Rescission of FASB
53
June 2000
FASB 139 rescinds FASB 53, Financial Reporting by Producers and Distributors of
Motion Picture Films. An entity that previously was subject to the requirements
of FASB 53 shall follow the guidance in AICPA Statement of Position 00-2,
Accounting by Producers or Distributors of Films.
FASB 53, Financial Reporting by Producers and
Distributors of Motion Picture Films, was issued in 1981. FASB 53 extracted
specialized accounting and reporting principles and practices from the AICPA
Industry Accounting Guide, Accounting for Motion Picture Films, and AICPA
Statement of Position 79-4, Accounting for Motion Picture Films. It also
established financial accounting and reporting standards for producers or
distributors of motion picture films.
Since the issuance of FASB 53, extensive changes have occurred in the film
industry. Through 1981, the majority of a film’s revenue resulted from
distribution to movie theaters and free television.
Since that time, numerous additional forms of exploitation (such as home video,
satellite and cable television, and pay-per-view television) have come into
existence, and international revenue has increased in significance. Concurrent
with those changes, significant variations in the application of
FASB 53 arose.
In 1995, in response to concerns raised by constituents, the Board asked the
Accounting Standards Executive Committee (AcSEC) of the AICPA to develop a
Statement of Position providing guidance on the accounting and reporting
requirements for producers or distributors of motion picture films.
In response to that request, AcSEC developed AICPA Statement of Position 00-2,
Accounting by Producers or Distributors of Films.
FASB 63, Financial Reporting by Broadcasters, is amended as follows:
In June 2000, AICPA Statement of Position 00-2, Accounting by Producers or
Distributors of Films, was issued and is applicable to all producers or
distributors that own or hold rights to distribute or exploit films.
A broadcaster shall apply the guidance in SOP 00-2 if it owns the film (program
material) that is shown on its cable, network, or local television outlets.
FASB 139 applies to all types of film, including feature films, television
specials, television series, or similar products (including animated films and
television programming) that are sold, licensed, or exhibited, whether produced
on film, video tape, digital, or other video recording format.
In addition, producers must follow the rules of FASB 121, Accounting for the
Impairment of Long-Lived Assets.
FASB 139 shall be effective for financial statements for fiscal years beginning
after December 15, 2000.