The CPA Journal
Accounting Changes for the Film Industry
By Marc H. Levine and Joel G. Siegel In Brief
Refined Rules for Reporting and Disclosure The AICPA’s effort to provide more comprehensive accounting guidelines for films resulted in Statement of Position (SOP) 00-2, Accounting by Producers or Distributors of Films. SOP 00-2 presents new accounting, reporting, and disclosure requirements for the motion picture industry, aimed at codifying the practice of timing revenue recognition, classifying film costs, and estimating future performance. In June 2000, FASB issued SFAS 139, which rescinded SFAS 53, Financial Reporting by Producers and Distributors of Motion Picture Films, and amended several other statements in order to incorporate the guidance in SOP 00-2. SFAS 139 became effective on December 15, 2000. The authors detail the statement’s requirements for revenue recognition, cost and expense reporting, and disclosures. An entity may license films to customers such as distributors, theaters, exhibitors, or other licensees on either an exclusive or nonexclusive basis in a particular market or territory. The license fee may be fixed (flat fee) or may be based on a percentage of a revenue (variable fee). A variable fee arrangement may include a nonrefundable guarantee paid in advance or over the license period. Revenue Recognition Revenue from the sale or licensing of a film should be recognized only when all five of the following conditions are met: Persuasive evidence of a sale or licensing arrangement with a customer exists. The film is complete and has been delivered or is available for immediate and unconditional delivery (in accordance with the terms of the arrangement). The license period has begun and the customer can begin its exploitation, exhibition, or sale. The fee is fixed or determinable. Collection of the fee is reasonably assured. If a receivable is recognized on the accounting records of an entity for advances presently due...