## Audit of Cinema Halls

### 1. Internal Control over Tickets

Verify that:

Entry to the cinema hall during a show is only through printed tickets.
Tickets are serially numbered and bound into books.
Tickets issued for each show and class are different, though the same class tickets for the same day run serially.
A separate series of tickets is issued for advance booking.
The inventory of tickets is in the custody of a responsible official.
At the end of each show, a statement of tickets sold is prepared and cash collected is agreed with it.

### 2. Free Passes

Verify that a record of free passes is maintained.
Confirm free passes are issued only under proper authority.

### 3. Tax Reconciliation

Reconcile the amount of Entertainment Tax collected with the total number of tickets issued per class.
Vouch and verify tax returns filed each month.

### 4. Advertisement Income

Verify charges collected for advertisement slides and shorts against the Register of Slides and Shorts exhibited at the cinema.
Cross-check with agreements entered into with advertisers.

### 5. Expenditure — Advertisement, Repairs, Maintenance

Vouch expenditure on advertisement, repairs, and maintenance.
Confirm that no part of such expenditure has been improperly capitalised.

### 6. Depreciation

Confirm depreciation on machinery and furniture has been charged at appropriate rates.

### 7. Film Hire Payments

Vouch payments for film hire against bills from distributors.
Refer to the relevant agreements for verification.

### 8. Advances to Distributors

Examine unadjusted balances of advances paid against film hire contracts.
Where a film has already run but advance remains unadjusted, enquire why.
Ask management to provide/provision for advances considered irrecoverable.

### 9. Restaurant Income

Enquire into the arrangement for collection of the cinema's share of restaurant income (fixed sum or fixed percentage).
If the restaurant is run by the cinema itself, audit its accounts — covering sale of foodstuffs, beverages, cold drinks, and purchases (similar to club audit).

Worked example

### Example 1

Example: During a cinema audit, you notice that advance payments of ₹3 lakhs were made to a film distributor 18 months ago but the film never ran. How do you handle this?

Answer: This is a potential irrecoverable advance. Enquire with management why the film did not run and why the advance has not been recovered. Verify the film hire agreement to check terms for recovery. If recoverability is doubtful, insist that management create a provision. If management refuses, consider qualifying the audit report.

### Example 2

Example: The cinema collected ₹15 lakhs as entertainment tax from patrons. The tax returns show ₹12 lakhs was deposited with the government. How do you verify this?

Answer: Reconcile the amount of tax collected (from ticket records and class-wise ticket counts) with total tax due. Cross-verify monthly tax returns filed. Any difference of ₹3 lakhs needs investigation — it may represent undeposited tax, an under-reporting risk for the cinema.

⚠️ Common exam mistakes

Not reconciling tax collected with tickets issued — discrepancies can indicate either tax under-payment or misappropriation of collections.
Overlooking free passes register — uncontrolled free passes reduce revenue and may indicate fraud.
Treating repairs and maintenance expenditure as capital expenditure — this inflates asset values artificially.
Not following up on unadjusted distributor advances — these can become irrecoverable if the film contract falls through.

Reference:

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