## Audit of Cinema

### Primary Audit Objective

Verify the effectiveness of internal controls to prevent fraud and revenue leakage.

---

### Internal Control over Ticket Sales

1. Printed Tickets

All entry must be through printed tickets only — prevents unrecorded cash sales

2. Serially Numbered Ticket Books

Tickets must be serially numbered and issued in bound books
Enables sequential accountability — missing numbers signal leakage
Serial pattern allows better control

3. Separate Series for Advance Bookings

Advance booking tickets use a distinct ticket series — prevents mixing with at-the-counter sales

4. Ticket Inventory Custody

Ticket inventory held in custody of a responsible official
Auditor verifies custodian records and reconciles unsold stock

5. Class-wise Distinct Seat Numbers

Tickets for each class (Balcony, Stalls, etc.) must carry distinct seat numbers
For recurring shows, same class seats follow a serial pattern

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### Reconciliation — Key Control

```

Ticket Sales Revenue

+ Advertisement Revenue

─────────────────────────

= Total Cinema Revenue

```

Auditor reconciles total ticket revenue (no. of tickets × price per class) against cash collected and bank deposits.

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### Hire/Distribution Agreements

Area	Procedure
Distributor Bills	Check against signed hire agreements
Advance Payments	Verify advances are backed by agreements giving right to run the movie
Unadjusted Advances	Review and investigate — provision for bad debt if irrecoverable (Management responsibility)

Advance to Distributors = Payment against right to screen a film

If advance is unrecovered → auditor checks provision for bad debts has been made by management

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### Current Trends (Additional Points for Exam)

Online booking platforms — reconcile digital payment gateway reports with box-office records
Food & Beverage (F&B) revenue at multiplexes — separate internal controls apply

Worked example

### Example 1

Example 1 — Reconciliation of Ticket Revenue

A cinema sold 500 Balcony tickets @ Rs 300 and 800 Stalls tickets @ Rs 150. Expected revenue = (500 × 300) + (800 × 150) = Rs 1,50,000 + Rs 1,20,000 = Rs 2,70,000. Auditor compares this with the cash collected (Rs 2,65,000). The Rs 5,000 shortfall is investigated — missing ticket stubs or cashier error are the likely causes.

### Example 2

Example 2 — Unadjusted Advance to Distributor

A cinema paid Rs 5,00,000 as advance to a distributor for a film that was never released. The advance has been sitting on the balance sheet for 18 months. The auditor: (a) reviews the agreement to confirm the right to sue, (b) checks if management has made a provision, and (c) qualifies/modifies the report if no provision is made and the amount is material.

⚠️ Common exam mistakes

Not reconciling the number of tickets issued (from bound books) against actual cash — a gap here is a red flag for revenue leakage
Ignoring the separate series for advance bookings, leading to double-counting or undercounting of seats sold
Treating all distributor advances as good assets without reviewing whether films were screened and the advances adjusted
Forgetting to include advertisement revenue (hoardings, screen ads) in the revenue reconciliation

Reference:

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