Lights camera CPA! CPA Irwin Jacobson talks about breaking the entertainment industry--and the challenges of accounting for it.

Irwin Jacobson witnesses magic every day at the office.

As vice president of finance and controller for Culver City-based Sony Pictures Entertainment, Jacobson has a front-row seat to the inner workings of some of Tinseltown's highest profile productions and celluloid heroes.

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A 16-year veteran of the entertainment industry, Jacobson will share some of the secrets of his success, as well as tips for how young professionals can springboard their careers, at CalCPA's Young and Emerging Professionals Conference in May 2007.

The conference, driven and designed by young and emerging CPAs, will be held in San Francisco and Los Angeles.

"This will be one of the most important conferences of 2007," says CalCPA Chair Marc Parkinson. "The program is busting at the seams with must-know information for young professionals, from negotiation and presentation skills to business etiquette and goal setting--all delivered by young professionals who are at the top of their game. If you want to be a future leader in the CPA profession, you won't want to miss this."

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Jacobson sat down with California CPA and discussed how a CPA can break into the entertainment industry, the challenges that movies and television programs face on their road to profitability and other top accounting issues in the entertainment industry--including why green M & M's may be a legitimate cost of production.

Q You were born in Portland, Ore., and graduated from the University of Washington. How did you wind up in the entertainment industry in Los Angeles?

A After graduating from the University of Washington, I went to work for Touche Ross, based out of Seattle. I audited a number of different industries--retirement homes, bakeries, even Starbucks in its infancy--but nothing sparked my interest the way that the entertainment industry did. It's always been a passion of mine. Growing up, I loved going to the movies, the theater, watching television.

So one day I thought about how to combine my outside interest with my career. As I was thinking about that, I was reading an article from Daily Variety about Touche acquiring a business management practice out of Century City. I called the managing partner of that Touche office and said, "I would love the opportunity to come and work out of your office. I'll relocate at my own expense--I just want to be in entertainment."

I told them I would audit whomever they need me to audit, as long as when they land that first entertainment client, I'm on the team.

Q Who was that first entertainment client that Touche landed?

A KADY-TV out of Oxnard and the ITC Entertainment Group in Studio City. Those were my two big clients. Unfortunately, it never really expanded too much beyond that. After a year and a half, I thought it was time to work for an entertainment company. I hired a headhunter and started looking for other opportunities.

Q And your next gig was Sony?

A That's correct. They created a title for me--assistant manager of special projects in the motion picture division of Columbia Pictures. It's a fancy title meaning whatever the controller needed done.

Then I moved into the motion picture finance analysis team and was eventually promoted to director of Studio Accounting, then to controller of The Culver Studios. I became controller of Sony Pictures Studios as well. Then they threw in facilities administration and credit and collections, then Post-Production, then Worldwide Product Fulfillment, and now they've added the Digital Authoring Center. Essentially, I am controller of multiple divisions.

Q What do you deal with in your job day to day?

A My group handles the accounting; financial reporting; budgeting and forecasting; financial analysis; business planning; credit and collections; purchase order administration; and SOX compliance. Everything related to accounting and finance and customer support for the business units that I mentioned: Studio Operations, Post-Production, Digital Authoring Center, Worldwide Product Fulfillment and Facilities Administration.

And on our credit and collections side, my team handles all of the billings and receivables for everything at Sony Pictures Entertainment, except motion pictures, television and home entertainment.

Q What would you tell young CPAs looking to bring their talents to the entertainment industry? What can they do to set themselves apart and establish a career in the entertainment industry?

A What I look for is what differentiates the person from the other candidates. It's not just technical skills, but what is different about you? What does a CPA bring to the interview and to the position that a non-CPA, someone who has a bachelor's degree in accounting for instance, doesn't?

CPAs tend to come to the table with a different mentality. They've had exposure and training that goes beyond what you get in school. Typically, a real strong candidate and a good CPA can analyze a situation, roll up their sleeves and do the journal entries that are necessary, and can also sit back and look at the entire process and come up with solutions that can be implemented at a higher level.

And you have to show your passion for it. When candidates tell me they have lots of budgeting and forecasting experience, or have developed a spreadsheet tool, that's terrific, that's technical. The difference for an entertainment industry accountant is showing your passion for the entertainment industry--going beyond the technical skills.

Interpersonal skills are also critical. You have to be with the clients and be part of these operating departments to be successful.

Q What are some of the high-profile productions that you have or are working on?

A In December, we have a movie called The Holiday coming out, with Kate Winslett, Cameron Diaz, Jack Black and Jude Law. We have a Nicholas Cage movie, Ghost Rider, coming out at the beginning of the year. We have the next Will Smith movie called Tonight He Comes, where he plays a superhero. And the next Adam Sandler movie, called Jack and Jill, is in production. Our biggest production that's just wrapping up is Spider-Man 3.

And then we have five or six TV shows shooting on the lot right now, including the new Brad Garrett show 'Til Death on FOX; Kidnapped on NBC; Runaway on the CW; and Wheel of Fortune and Jeopardy have been here for the last 10 years.

Q What are the big issues in entertainment accounting these days? FASB Statement 53 (Reporting by Producers and Distributors of Motion Picture Films) was rescinded in 1998 and replaced by the AICPA's Statement of Position 00-2, Accounting by Producers or Distributors of Films (FASB Statement 139). Was that the final word in entertainment industry GAAP, or has there been further evolution of the standards?

A There's no such thing as a final word in the entertainment industry because things are always evolving. And while the AICPA's SOP 00-2 from August 2000 was the most recent formal guidance, that's already 6 years old and the industry has changed since then.

On-demand entertainment is becoming much more prevalent and mobile is only at its infancy--watching movies and TV shows on your watch or on your telephone or on your Blackberry is becoming huge. How do we account for that differently, if at all, from how we do a theatrical release or something that's going on television?

We're going to continue to see changes in the accounting to follow changes in the industry.

Q Tell me about production accounting: what are the main challenges? Do the development and pre-production stages pose any particular challenges in calculating production costs?

A From an accounting standpoint I think the biggest challenges for production are budgetary. CPAs are supposed to keep watch and instill controls over spending, and when it comes to production, there's no real black or white--everything is shades of grey.

And so, when the star of a production says that they want green M & Ms, a double-wide trailer and only Evian water delivered direct from the Swiss Alps on a jet plane and kept at 47 degrees Fahrenheit, are those reasonable to be part of your production costs? And how do you manage a budget when you have these kinds of demands?

Q Is there an IRC section that covers green M & Ms?

A You're well beyond my knowledge base there (laughing). In the example I gave, you couldn't get that talent on the show unless you heed their demands. Therefore, it's a valid cost because you have to have that talent on this show for the network to commit to it. Then it becomes a matter of how do we budget for that? Where are we going to cut to cover the costs of that Evian water? Are we going to have one less accountant on the job? One less day of shooting? Are we going to negotiate a bigger discount on the sub-rentals of our lights?

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Sometimes, from a budgetary standpoint, you can spend millions of dollars on a movie or on a television show before one page is even shot.

And another big challenge from an accounting standpoint is getting purchase orders.

When a show is in production, the lighting director might come to the lighting department and say, "I need some more lights on this stage; we're going to change the way this particular shot will be done." And you say, "Where is your PO?" And they'll say, "I don't have time. You'll get the PO from the accountants later." Then we end up chasing down those POs.

You could stand still and say, "Without that PO we can't issue you those lights." But are you really going to take the chance that a Martin Scorcese production is going to be delayed because you didn't have a signed PO? Can you imagine? "Um, I'm sorry Mr. Scorcese, we're going to have to shut down your production until your accountants can get their POs to us." So the accountants want to stick to the rules and make sure that they're enforced in the studio, yet production rules. That's a real challenge.

Q What about distributing royalties? What are the main accounting issues in this area? Or is it simply a matter for the lawyers?

A We have a lot of participations and residuals accountants on our finance team. And we also have a lot of outside accountants who review our books and gain access to the records to audit the statements in order to try and find the maximum amount of money for their clients.

The issue is that every deal is unique--there's no standardization to these royalty agreements. Every lawyer and every business manager develops something unique depending on the level of the talent, how strong their representation is, what they've done in the past, what we've given in the past and the size of the show.

It's ultimately contract law. Our role in accounting is to make sure that all of the supporting documentation for the transactions that go into the accounting exist and are identifiable, so that when those royalty statements are questioned, we can support the numbers and produce the backup documentation.

When we implemented SAP two years ago here, one of the major concerns was the participations and residuals impact of the setup. We had to design our structure specifically to make sure that we had as much detail as possible to facilitate the calculation of these deals. We had to make sure that all the territories in the world and all the different types of markets and accounts were added. There's no simple template you can follow.

And there's no statute of limitations. Someone might say, "When you shot Mad About You 14 years ago when it was in production, we didn't get enough of the profits, so we want to see proof that the show generated this amount. We think we're entitled to more money." And then you have to dig through the records of a system that's probably not even online anymore.

Q It seems that productions often struggle to meet their budgets and work on extremely tight deadlines. What special challenges do CPAs in the entertainment industry face when trying to align budgeting and forecasting?

A The goals and objectives of CPAs and accountants are often very different than those of the creative people. The creative and the marketing people are trying to gauge what the market will want to see, sometimes two or three years down the line. By the time you get a show on the air or out into theaters, they have to project which talent will be hot by then, what stories are going to be relevant and what trends are going to be applicable. In this business, timing is everything.

We help them create budgets based on the assumptions that they provide, then track the actuals and the estimated final costs on them as we're going along.

But sometimes when buzz develops, or negative buzz develops, we accountants end up scrambling. We have to recalculate the ultimates and recalibrate the projections, then marketing does a restrategizing of their approach.

Q What are some of the perks of being a CPA in the entertainment industry? Have you rubbed elbows with the stars?

A I have. It's actually one of the biggest perks for me. I've been doing this for 16 years at this company, and it never gets old.

I remember watching Steven Spielberg direct the movie Hook years ago. I got to climb on the pirate ship, all the way up to the crow's nest, and I also got to mingle with the stars and watched Dustin Hoffman and Glenn Close acting. I've bumped into Geena Davis. I've talked with Adam Sandler, whose office is on the lot and plays basketball at lunch with whoever's out there, cracks jokes and walks his dog. That kind of stuff happens all the time.

Q What keeps you awake at night? What finance or accounting issues really make you toss and turn?

A It's not so much the accounting issues and where do the debits and credits go. My job is to provide financial support and accounting expertise to my clients--the departments that I service for my organization. It's more of a staffing issue for me. I need to have the best and brightest talent that can look up those answers, develop the financial statements and produce the business support that is necessary for our business to thrive. I'm more concerned that the people working for and with me are at the top of their game and are continuing to grow.

That's why I like having CPAs working with me and for me, because I know that they're committed to continuing education and learning. It's not just about having a few initials after your name. It means something more, it always has to me, and that is reflected in one's work and professionalism.