# Audit of Cinema

## A. Internal Control over Ticket Sales

Verify the internal control mechanism:

### Entry Control

Entrance to cinema-hall during the show is only through printed tickets
Tickets are serially numbered
Number of tickets issued for each show and each class are different (separately identifiable)
For advance booking, separate series of tickets is issued
Inventory of tickets is kept in custody of responsible official

### Show-End Reconciliation

At end of show, statement of tickets sold is prepared
Cash collected is agreed with the statement

### Tax Reconciliation

Reconcile amount of tax collected with total number of tickets issued for each class
Vouch and verify tax returns filed each month

## B. Vouching Income

Vouch entries in Cash Book for cash collected on sale of tickets for different shows

## C. Vouching Expenditure

### Advertisement, Repairs and Maintenance

Vouch expenditure on advertisement, repairs and maintenance
No part of such expenditure should be capitalised (these are revenue items)

### Depreciation

Confirm that depreciation on machinery and furniture has been charged at appropriate rate

### Film Hire Payments

Vouch payments on account of film hire with bills of distributors
Refer to agreements with distributors

### Advances to Distributors

Examine adjusted balance out of advance paid to distributors against film hire contracts
See that they are good and recoverable
If any film for which an advance was paid has already run, enquire why the advance has not been adjusted

Worked example

### Example 1

Example - Ticket Reconciliation for a Show:

For a 6 PM show in a 200-seat hall:

Tickets numbered 1001-1200 (Balcony Rs 200), 2001-2150 (Stalls Rs 150)
After show: Balcony sold 1001-1180 (180 tickets), Stalls sold 2001-2100 (100 tickets)
Expected cash: (180 × 200) + (100 × 150) = 36,000 + 15,000 = Rs 51,000

Auditor verifies actual cash collected = Rs 51,000. Any shortage = potential misappropriation.

### Example 2

Example - Advance to Distributor Not Adjusted:

Cinema paid Rs 5 lakh advance for film 'XYZ' in May 2025. Film ran from June-July 2025 and was withdrawn. At year-end (March 2026), Rs 2 lakh of advance still appears outstanding.

Auditor must enquire:

Why has Rs 2 lakh advance not been adjusted even though film has run?
Is the distributor solvent? Is the amount actually recoverable?
Is there a need to provide for doubtful advance?

### Example 3

Example - Capitalisation Test:

Cinema spent Rs 3 lakh on:

Repainting walls (revenue)
Replacing projector lens (capital - replacement of asset component)
Hoardings for new movie (revenue - advertisement)

Auditor ensures: only projector lens replacement is capitalised; painting and hoardings charged to P&L.

⚠️ Common exam mistakes

Treating advertisement expenses or routine repairs as capital expenditure (incorrect - they are revenue)
Not using serially numbered tickets - inability to reconcile cash collections
Not following up on advances to distributors after the film has been screened
Failing to reconcile entertainment tax collected with tickets sold
Not maintaining separate ticket series for different classes/shows/advance booking

Reference:

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