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5 reasons why royalty audits are worth your time and money

Created: August 2015

Royalty audits are not a phenomenon that is too well known outside particular sectors of the economy but they are, in fact, hugely important to owners of valuable IP such as authors and their publishers, technology companies, fashion houses and even Premier League football clubs who increasingly rely on overseas merchandising.

Because the UK has such prominence in the creative, pharmaceutical and advanced technology industries, it is perhaps hardly surprising that it now has a small number of highly specialised accountants who are capable of conducting forensically thorough royalty audits across the globe.

Here we look at five reasons why individuals and businesses find it so worthwhile to have regular royalty audits of their licensees:

1. They boost overall royalty income

Royalties have traditionally been under-reported and therefore underpaid. There is a suspicion that the majority of licensees routinely report royalties incorrectly and that this results in significant underpayments. Set against this background, it is perhaps hardly surprising that royalty audits can result in such noticeable improvements in income.

2. They save you time

Having a specialist firm of accountants conducting regular royalty audits means that you don’t have to spend valuable time on visiting far-flung territories to find out what exactly is going on. It will have a team of extremely specialised staff with all the necessary linguistic skills and appropriate cultural knowledge right here in the UK.

3. Royalty audits keep licensees on their toes

All too often, licensees will deliberately bend the rules by such ruses as under-reporting sales or deducting far too many disallowed marketing costs. If they know from the outset of a contract that professional royalty audits will be conducted, there is a much better chance that a new licensee will get off on the right foot.

4. Valuable feedback for future contract wording

Individual and corporate owners of IP often find that royalty audits turn up the same specific problems time after time and it is usually down to incorrect interpretation of contract wording or some inappropriate wording in the first place. This provides valuable input when it comes to revising the wording of contracts for future use.

5. Improving your own and your licensees’ operating processes

Finally, it is worth bearing in mind that the specialists you choose to conduct your royalty audits will have already performed so many for other organisations that they have a firm grasp of what works and what doesn’t and how both you and your licensees can improve the way you operate and interact. Royalty audits should always be ultimately viewed as mutually constructive exercises and not just about waving the big stick.

If you have yet to set in train your own programme of royalty audits or would simply like to consider an alternative approach to your existing arrangements, the specialist team at Fisher Forensic would be only too delighted to have a discussion without obligation.

Rafi Saville, Royalties Partner
T 020 7874 7967
E rsaville@hwfisher.co.uk