Royalty Audit
What is a Royalty Audit
A royalty audit is an examination of an organisation's financial records to ensure that it is accurately calculating and paying royalties to the rightful owner(s) of the intellectual property it is using. The main purpose of a royalty audit is to verify the accuracy of royalty payments and identify any underpayments or overpayments of royalties due to the owners.
Types of Royalty Audits We Deliver
Here are a few examples of the types of Royalty audits we can deliver:
- Media and Entertainment industry: A music publisher may conduct a royalty audit on a record label to ensure that the label is accurately calculating and paying royalties for the use of songs in album sales and streaming. Similarly, a film studio may conduct a royalty audit on a distribution company to ensure that the distribution company is accurately calculating and paying royalties for the use of their films.
- Pharmaceuticals industry: A pharmaceutical company may conduct a royalty audit on a distributor or license holder of a patented drug to ensure that the distributor or license holder is accurately calculating and paying royalties for the use of the patented drug.
- Software industry: A software developer may conduct a royalty audit on a reseller or licensee to ensure that the reseller or licensee is accurately calculating and paying royalties for the use of their software.
- Licensing agreements: An individual or organisation who owns a patent or trademark may conduct a royalty audit on a licensee of their property to ensure that the licensee is accurately calculating and paying royalties for the use of the property
- Royalties for oil and gas: A company that owns mineral rights may conduct a royalty audit on a drilling or production company to ensure that the drilling or production company is accurately calculating and paying royalties for the extraction of oil and gas from the property.
During a royalty audit, the auditor will typically review the organisation's financial records, contracts, licensing agreements, and other relevant documents. They may also conduct on-site inspections and interviews with employees to gather additional information. The auditor will use this information to determine the correct amount of royalties that should have been paid, and compare that to the amount that was actually paid.
The outcome of the audit will be a report detailing any discrepancies found, any royalties that may have been underpaid, and any recommendations for improvement. If underpayments are identified, the organisation may be required to pay additional royalties, along with interest and penalties.
Who Should Undertake Royalty Audits?
Royalty audits can be conducted by the organisation that owns the intellectual property or by an independent third party, such as an auditing firm. They are common in the entertainment and media industry, where intellectual property rights are involved, but also in many other industries, where intellectual property is used as part of the product or service.
Overall, a royalty audit helps organisations to ensure that they are accurately calculating and paying royalties to the rightful owners, it also helps to protect the organisation against potential legal issues by ensuring they are in compliance with their licensing agreements.
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