Appendix III - Audit Accounting Guidelines

An Audited Statement of Production Costs is required for all productions with a final cost of $500,000 or more, while a Review Engagement Report (as defined in sections 8100 and 8200 of the CICA Handbook) will be accepted for productions with a final cost of $200,000 to $499,999. For productions with a final cost of less than $200,000, the producer will be required to submit a CAVCO-approved notarized affidavit attesting to the total cost of the production.

It is the producer's responsibility to ensure that all of the required information is provided. CAVCO will not accept audited schedules which do not conform to the guidelines outlined herein.

General

  • The auditor must be a Licensed Public Accountant in Canada and must be an independent third party, not related to the producer.
  • The auditor's report must be addressed to the party which has engaged the auditor, that is, the Directors of the production company or the producer of the production.
  • The auditor's name, address and telephone number must be evident.
  • The auditor's report must be dated as at the completion of the audit fieldwork.
  • The audit must be performed in accordance with generally accepted auditing standards and the auditor must have sufficient knowledge of accounting principles and practices generally recognized in the film and television industry.

Identification of the production

  • The title of the production and, when applicable, the episode numbers, must be disclosed.
  • The title of the schedule must indicate the type of costs reported: "Schedule of Production Costs" means the standard schedule of negative costs.
  • The period during which the costs were incurred must be disclosed.

Cost report

  • The cost report must be in Canadian dollars and conform as much as possible to the Schedule of Production Costs model provided hereafter. Alternatively, CAVCO will accept that the auditor present the results of the audit on CAVCO's Breakdown of Costs form (Form 6 for live action productions and Form 7 for animation productions) as long as the audited Breakdown of Costs conforms to proposed Subparagraphs 1106(3)(b)(iii) and (iv) of the draft Income Tax Regulations, and is accompanied by the required standard disclosures and explanatory notes.
  • Only expenditures which were incurred for the production can be recorded as production costs; these must be charged to the proper budgetary item.
  • Refunds and credit notes received for discounts, rebates, invoicing errors and purchase returns must be credited to the production costs; similarly, proceeds from the sale of props and other production assets must be deducted from the costs presented in the cost report. In cases where props and other productions assets are kept in inventory for future productions, they must also be deducted, at fair market value, from the costs presented in the cost report.
  • Completion bond expenditures must reflect any "no-claims rebate" received (the amount reported must be net after rebate).
  • Amortization of series costs must be allocated to specific cost categories.

Notes to the cost report

  • Sources of funds

    All sources of funds that were used to finance the production must be disclosed, including any non-monetary transactions (as defined in section 3830 of the CICA Handbook) that were included in the cost of the production.

    Non-monetary transactions must be disclosed at fair market value. The nature of the services provided and the consideration given in exchange for the services must be disclosed.

    If there were no non-cash transactions, the schedule must include a note to that effect.

  • Non-Canadian costs

    The notes to the Schedule of Production Costs must provide a breakdown of all non-Canadian costs and include: a) the budget item and b) the amount of the transaction.

    Production costs incurred in foreign currencies must be converted into Canadian dollars at the rate exchange in effect at the time of transaction.

    If there are no non-Canadian costs, the schedule must include a note to that effect.

  • Accounts payable, accrued charges and deferrals

    The amount of accounts payable, accrued charges and deferrals must be presented separately as at the ending date of the cost report.

    If there are no accounts payable, accrued charges or deferrals, the cost report must include a note to that effect.

  • Related party transactions

    The notes to the Schedule of Production Costs must provide a breakdown of all related party transactions (as defined in Section 3840 of the CICA Handbook), and include :
    1. the name of the related party
    2. the nature of the relationship between the related party and the production company
    3. the nature of the transaction, and
    4. the amount of the transaction.

    If there are no related party transactions, the schedule must include a note to that effect.

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