Reference no: EM132603245

Question - Hollywood Studios Audit China Box Office Figures

According to the 2017 video, an audit found that Chinese theaters were shortchanging Hollywood movie studios. These studios have been releasing major blockbusters with both storylines and characters that are meant to specifically target Chinese audiences. In fact, studios depend on these overseas audiences to save critically slammed blockbusters.

Auditors at Price Water house Coopers (PwC) found that about 9% of ticket revenues were unreported or skimmed and that this amounted to at least $40 million in revenue for the six major studios.

Issues noted in the audit resulting in missing revenue included: Sales listed as concessions, incorrect audience numbers, and screenings that were completely unreported.

This was part of an investigation on behalf of the Motion Picture of America Association (MPAA). The auditors examined the 29 biggest blockbuster movies released in China in 2016 and looked at 125 screen locations run by 27 different movie chains.

At the time of the video and the report, the U.S. motion picture industry was renegotiating a revenue sharing agreement with China, since the original five-year agreement ended. At question were the push by Hollywood to have more market access, as well as the Chinese to boost product from their growing movie industry.

The investigation was only a sample of screens. In fact, China has the largest number of screens in the world, numbering about 43,000.

Prior to renegotiating the WTO agreement on revenue sharing, U.S. studios officially grossed $1.87 Billion and took home $470 M.

(1) What events or agreements in 2015 indicated that audits between studios and the Chinese movie market would become more important?

(2) What was the revenue sharing percentage prior to renegotiation of the 2015 WTO agreement?

(3) According to the textbook, revenue recognition is more problematic with respect to audit inherent risks in some industries, as compared to others. Would this be the case in the movies industry in China? Why?

(4) Revenue recognition in Chinese movie theaters is also problematic with respect to audit control risks. Why?