Preparing for a Royalty Audit: What Auditors Ask For First
By Qlero Team
Prepare the agreement, statements and supporting records for a royalty audit. Trace a split error and separate reporting evidence from a complete change log.
A royalty audit asks whether the reporting follows the agreement. Preparing for one means being able to connect the agreed terms, the statements you issued and the records behind the amounts—not simply producing a spreadsheet whose totals add up.
Start by assembling those records before a request arrives. This guide explains what to prepare, how to organise the response and what a split error can look like. It is an operational checklist, not legal advice or a prediction of an audit's findings.
Start with the agreement and the request
Read the signed agreement, amendments and the actual audit request together. Do not assume that every deal grants identical access or follows a standard timetable. Ask your legal adviser to confirm the applicable notice requirements, scope, periods, deadlines, confidentiality terms and cost provisions before you respond.
In its practitioner guide on Synchtank, Y Royalties describes starting with the agreement and a notice of intent. It distinguishes a desktop review of supplied agreements and statements from a fuller examination of the label's or publisher's supporting records. That describes the firm's approach, not a mandatory sequence for every engagement. Y Royalties' audit guide.
Agree a document-request list and a point of contact with the auditor. If something is missing, identify it and explain the gap; do not quietly substitute a current report for a historical version.
Prepare the first document package
We recommend organising a response folder around three questions: what should have happened, what you reported, and what supports that reporting.
- Agreements and amendments. Include the executed versions relevant to the period, plus an index connecting them to the artist, payee, contract and covered repertoire. Flag unresolved interpretations for the appropriate adviser.
- Issued statements. Keep the statements actually sent, together with any later corrections. Record the period, currency, issue date and which version the recipient received.
- Supporting records. Identify the sales reports, cost invoices, advance records, adjustments and payment evidence needed to explain the figures. Keep source files alongside any transformed data used for calculation.
Do not send an unrestricted export of every artist's records by default. Confirm the agreed scope and use an approved secure sharing method. Keep a delivery index showing what was supplied, its version and any outstanding questions.
A worked example: the totals agree, but the split is wrong
Suppose a fictional publishing agreement allocates a defined royalty pool 40% to Writer A and 60% to Writer B. The system instead contains 35% and 65%. Assume the entire pool is eligible for these shares, with no fees, taxes, advances, currency conversion or other adjustments.
For a $10,000 pool, the difference is:
| Writer | Agreed share | Entered share | Correct earnings | Reported earnings | Difference: correct minus reported |
|---|---|---|---|---|---|
| A | 40% | 35% | $4,000 | $3,500 | +$500 |
| B | 60% | 65% | $6,000 | $6,500 | −$500 |
| Total | 100% | 100% | $10,000 | $10,000 | $0 |
Both versions reconcile to $10,000. That does not establish that either writer's share is correct. Comparing the configured shares with the signed agreement reveals the five-percentage-point difference.
These are differences in reported earnings, not automatically amounts of cash owed or recoverable. A real investigation also needs to establish the affected revenue, dates, balances and payments. Do not assume that one party's overstatement can simply be recovered and paid to the other without reviewing the agreement and applicable requirements.
This example concerns composition shares. Recording royalty rates and producer points may use different bases; do not transfer the example's structure to those deals by assumption. Our guide to recording and composition splits explains the distinction.
What may happen after the initial request
KPM's CPA-authored overview describes reviewing the agreement and sales data, walking through the reporting process, sampling transactions, examining trends and checking customer invoices. It is a general licensing-audit overview, not a music-specific procedure required in every case. KPM: Auditing Royalty Agreements.
Use the following as a preparation map. The auditor should determine the actual procedures and their order.
| Stage | What to be ready to explain | Records to organise |
|---|---|---|
| Scope and document request | Which agreements, rights and periods are covered | Relevant executed agreements, amendments and issued statements |
| Process walkthrough | How a source report becomes a royalty statement | Process notes, mappings and worked reconciliations |
| Transaction review | How selected entries were calculated | Source rows, applicable terms and supporting cost records |
| Trend and invoice checks | Why movements or differences occurred | Comparable period data, source invoices and explanations |
| Findings and response | Whether each proposed difference is supported | A query log, evidence and recalculated examples |
| Agreed resolution | What correction or other action was agreed | Written resolution and evidence of its implementation |
Completion of an audit should not be described as a universal bar on further examination. Have the relevant adviser review the agreement, any settlement and applicable law before drawing conclusions about later claims or access.
Check inputs as well as calculations
The split example illustrates why arithmetic checks alone are insufficient. For your internal preparation, we recommend selecting examples that test several different inputs:
- A royalty rate against its defined base, rather than the percentage alone.
- A cost against its invoice, allocation and contractual treatment.
- An advance against its supporting payment record and recorded balance effect.
- An amendment against the affected repertoire and the period or dates it applies to.
- A statement amount against the relevant balance movements, not just its sales total.
Treat these as review questions, not proof that an error exists. Preserve explanations for legitimate differences as carefully as evidence of corrections. See the statement field guide for the difference between earnings, balances and payments.
What Qlero can contribute to the response
Qlero's documentation describes published statements grouped by period, with payee, account and contract views. Users with the appropriate Artist Portal access can download a Statement PDF and Sales CSV; recording statements also support a Costs CSV. A royalty total is not necessarily the payment amount. Statement documentation.
The standard CSV fields include identifiers, sales amounts, rates and calculated royalties, while cost details include allocation information. The record company chooses the columns and can rename headings, so confirm the actual export before relying on it for an audit request. CSV field documentation.
These outputs can support a document package. They do not, on their own, prove that every historical change and approval has been logged. If your auditor needs previous values, user identities, timestamps, retention periods or a particular export, specify those requirements and verify the available records. This guide does not claim a complete Qlero audit log or certified audit compliance.
Frequently asked questions
How far back can an audit go?
Check the actual agreement and seek advice on any relevant legal deadlines. There is no universal lookback period established by this guide, nor a blanket rule that a completed audit makes a period permanently unreviewable.
Who pays for the audit?
Check the cost clause. KPM notes that some agreements transfer costs to the licensee when an underpayment exceeds a specified margin. Do not assume a particular threshold, reimbursement or result applies to your contract.
Does finding a discrepancy guarantee a cash payment?
No. Establish whether the difference is accepted and how it affects earnings, recoupment and the payable balance. Y Royalties describes outcomes that may reduce an unrecouped balance or result in a statement adjustment or separate payment. The agreed resolution matters.
Can I reopen a closed Qlero period to fix it?
Qlero documents that a closed period cannot be reopened or recalculated. Preserve the original evidence and confirm the appropriate correction procedure with support and your adviser; do not promise a rewrite of closed history. Period lifecycle.
Who should coordinate the response?
We recommend one named coordinator, with finance responsible for reconciliations and appropriate advisers handling scope or contractual questions. Keep responsibilities explicit rather than assuming that whoever exports the statements can answer every question.
Test retrieval before the deadline
Choose one agreement, one issued statement and one supporting transaction. Can your team retrieve the versions that explain the result and show the calculation without guessing? Use any gaps to improve the document package before expanding the test.
Book a Qlero demo to review the statement and export workflows against your reporting requirements. A product demonstration is not an audit opinion or legal review.