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22 Sep | 5 Reasons You Need Regular Royalty Audits

A lot of people have never heard of royalty audits, and in fairness most people have no reason to consider them. Nevertheless, for owners of valuable intellectual property, they are massively important across many sectors of the economy. These include, most obviously, authors and publishers, but also tech firms, fashion houses and even football clubs – particularly in the Premier League where overseas merchandising has become a huge part of most clubs’ revenues. As the UK is so prominent in the creative and high-technology industries, we have seen the development of a small number of accountants who specialise in international royalty audits.

Take a look at these five reasons why individuals and businesses find regular royalty audits so valuable:

1. Royalty audits can save time and money

Few individuals or businesses have the time, resources or skills required to visit far-flung countries for the purpose of a royalty audit. A specialist firm of UK-based accountants will be able to draw on the financial, legal, cultural and linguistic experience they need to find out what’s going on with your royalties.

2. Get what’s coming to you

You may be concerned that your royalties are being under-reported and therefore underpaid. Unfortunately, it’s quite likely that your suspicions are correct. Many IP experts believe that the majority of licensees routinely report royalties wrongly, leading to significant underpayments. Set against this background, it is not surprising that royalty audits can lead to considerable improvements in income.

3. Royalty audits keep licensees in line

Licensees are less likely to bend the rules if they know they are going to be subjected to regular royalty audits. As it’s not uncommon for licensees to under-report sales or deduct excessive marketing costs, you’ll want to guard against these practices by making it clear that the eyes of an expert will be on them.

4. Royalty audits can make contracts better

Royalty audits often reveal the same issues time after time. Specific, recurrent problems usually arise when a contract clause has been either wrongly interpreted or poorly worded in the first place. Specialist accountants can provide valuable feedback when it comes to revising the wording of future contracts.

5. They can improve processes – for you and the licensee

At first the licensee might not see it this way, but remember that committing to regular royalty audits can benefit all parties. A specialist accounting firm will have built up a lot of experience about what works and what doesn’t when it comes to how you and your licensees interact. Their advice will help both you and your licensee, and allow your relationship to develop within the assumption of transparency.

If you haven’t yet set up your own programme for royalty audits or you’re interested in exploring alternative ways to monitor your royalty income, the specialist team at Fisher Forensic would be delighted to have a no-obligation discussion.

Staff Writer