MTP Monthly Next Week

The first MusicTechPolicy Monthly newsletter of 2011 will ship next week.  We will feature the first of a continuing series on “The Big Picture” that will address the kind of policies necessary to develop market forces for new business models to thrive.  The MTP Monthly newsletter is subscription only, sign up at MusicTechPolicyMonthly.com

In this time of watching where the pennies go, we will also feature an interview with royalty specialist Keith Bernstein, CEO of Royalty Review Council and technology company Crunch Digital who specializes in royalty audits of digital service providers.

An excerpt from Keith’s interview:

MTP: What is the difference between a royalty auditor and an accountant? A lot of people probably don’t really understand the difference.

Keith Bernstein: I am glad you asked that, an accountant is a generalist and a royalty auditor is specialized.  An accountant typically works on profit and loss statements and audited financials. They follow certain criteria in order to render their opinion, perhaps under GAAP, or general auditing standards. A royalty auditor needs to understand how the royalty payment terms work, both in record royalties, as well as mechanical licenses and musical compositions. A royalty auditor has good familiarity with not only the accounting terms but how the systems data flows at these various companies that they are going to audit.  If you don’t understand the jargon of the music industry you could make a material mistake. As a general accountant you can’t just walk in and think you are going to understand the music industry. A number of the auditors like me come from the music industry and are much more effective because we have lived in the trenches. I would never for a moment think just because I have a finance background and we do these royalty audits that we can go generate an audited financial report even as a CPA when that isn’t where our focus is. We have found that audits conducted by these generalists are typically more expensive than the ones done by the royalty auditor because the accountant has to spend a lot of time with the learning curve before conducting an audit.   

MTP: So, spin that out a little bit. When you approach an audit you familiarize yourself with the contracts?

Keith Bernstein: Absolutely. We need to understand what was negotiated in terms of payment rates and whatever else dictates our client’s payment.  Compliance is how you best summarize it.

MTP: What is the difference between a royalty auditor and an accountant? A lot of people probably don’t really understand the difference.

Keith Bernstein: I am glad you asked that, an accountant is a generalist and a royalty auditor is specialized.  An accountant typically works on profit and loss statements and audited financials. They follow certain criteria in order to render their opinion, perhaps under GAAP, or general auditing standards. A royalty auditor needs to understand how the royalty payment terms work, both in record royalties, as well as mechanical licenses and musical compositions. A royalty auditor has good familiarity with not only the accounting terms but how the systems data flows at these various companies that they are going to audit.  If you don’t understand the jargon of the music industry you could make a material mistake. As a general accountant you can’t just walk in and think you are going to understand the music industry. A number of the auditors like me come from the music industry and are much more effective because we have lived in the trenches. I would never for a moment think just because I have a finance background and we do these royalty audits that we can go generate an audited financial report even as a CPA when that isn’t where our focus is. We have found that audits conducted by these generalists are typically more expensive than the ones done by the royalty auditor because the accountant has to spend a lot of time with the learning curve before conducting an audit.   

MTP: So, spin that out a little bit. When you approach an audit you familiarize yourself with the contracts?

Keith Bernstein: Absolutely. We need to understand what was negotiated in terms of payment rates and whatever else dictates our client’s payment.  Compliance is how you best summarize it.