Litigation Services Handbook, 2015 Cumulative Supplement: The Role of the Financial Expert, 5th Edition

CHAPTER 25A

ROYALTY AUDITS AND CONTRACT COMPLIANCE INVESTIGATIONS^* (NEW)

Ben W. Sheppard

CONTENTS

25A.1 Introduction

25A.2 Rights Commonly Subjected to Contract Compliance Investigations

(a) Intellectual Property Royalties and License Fees

(b) Other Property-Contingent Compensation

(c) Construction, Design, and Commercial Overhead Costs

(d) Development, Distribution, and Marketing Agreements

(e) Most Favored Nations Provisions

25A.3 Reasons for Contract Compliance Investigations

25A.4 Comparing Contract Compliance Investigations and Financial Statement Audits

(a) Basis of Accounting

(b) Professional Standards

(c) Materiality Concerns

(d) Scope of Activity Tested

25A.5 Overview of Stages of Contract Compliance

25A.6 Planning

(a) Reviewing Documents Retained by Grantor

(b) Additional Research

(c) Identifying Concerns from Grantor and Counsel

(d) Identifying Investigation Risks

(e) Identifying Initial Work Program Steps

(f) Initiating Communications with Grantee

25A.7 Fieldwork

(a) Grantee Personnel Interviews

(b) Grantee's Readiness for Fieldwork

(c) Reliability of Grantee's Documents

(d) Sales Transactions

(e) Subdistributor and Affiliate Sales

(f) Sales Discounts and Other Deductions

(g) Software Unit Deployment

(h) Returns and Price Protection

(i) Expense Transactions

(j) Contingent Compensation Rates

(k) Barter Transactions

(l) Foreign Currency Translations

(m) Foreign Tax Withholdings and Tax Credits

(n) Nonmonetary Issues

(o) Extrapolation of Findings

(p) Scope Limitations ...