Despite being one of the most powerful tools available to artists and rights holders, royalty audits are widely misunderstood and often avoided. Here, we cut through the confusion and set out exactly what an audit involves, what it can uncover, and why, far from being confrontational, it’s simply good business practice.
How do you go about auditing the publishers or labels accounts?
In most agreements there will be a clause which gives you the right to audit the publisher’s or label’s books and records. You should always argue to keep this in any agreement – reputable companies will always include this clause. The start point for any audit will be this agreement. It details the term, royalty rates, income source basis, accounting periods and audit provisions – in short everything that dictates what you are paid from the money the label or publisher collects on your behalf.
The first step is to issue a notice to the publisher or label stating the intention to audit. This is something we can prepare for you to sign and then submit to the appropriate party. Once this is submitted and acknowledged by them with appropriate notice, the audit process can begin.
What audits are available?
There are two main options for an audit, the first is a desktop audit, the second is a full audit. A desktop audit is completed by the auditor using the agreements and statements that you have provided. During a full audit the auditor will request additional information from the publisher or label and carry out a site visit (usually virtual) to the auditee’s office to review and analyse that information.
All audits at Y Royalties start with ingestion of your royalty statements into our data warehouse to commence our data driven analysis of the royalty income.
Once the statements have been ingested into our data warehouse and a combined view for the audit period has been created then the following can be reviewed:
- Songs and compositions or works. Have all titles been reported during the audit period? Are the shares or splits correct? If not, why not?
- Advances. Have the contractual advances been paid in accordance with the agreement?
- Costs. Have any costs been charged to the account? If so, are they in accordance with the agreement?
- Royalty rates. Are the royalty rates reported correctly? There are different rates for different types of exploitation, have these been applied correctly? If the rates are due to increase upon recoupment of advances, different option periods, or upon meeting certain thresholds, have these been applied?
- Is approval required for certain types of exploitation? If so, can the publisher or label provide evidence of approval
- Has the catalogue been sufficiently exploited as per the terms of the agreement?
All of the above is undertaken by the royalty auditor, and a report of findings and recommendations will be provided, which will allow you to decide whether a full audit is appropriate.
In a full audit, the above work will be undertaken along with a (virtual) site visit to the publisher or label’s offices. Prior to the field work taking place, we send a list of information requests to the publisher or label outlining the data and information we have selected for review. During the site visit, source income statements and intercompany reports will be reviewed. This is to ensure that the income on which the royalty is calculated is correct.
Alongside our standard audit procedure, Y Royalties also undertakes a pioneering digital audit procedure. Where traditional auditing relies on sampling and manual review, our digital audit goes further, applying proprietary anomaly detection models and advanced data analytics across comprehensive royalty datasets. This cross-source analysis highlights a wide array of issues that traditional auditing techniques cannot identify — from systematic underreporting and mismatched song-to-track data to inconsistencies buried deep within complex Digital Service Provider (DSP) reporting chains. Our digital audit work sets a new standard for what a music royalty audit can achieve.
Once the field work is complete and following any correspondence with the publisher or label relating to outstanding queries, a draft report, including any claim calculations will be sent to you for approval, prior to being submitted to the publisher or label.
Upon receipt of the report and claim schedules by the publisher or label there will be a period of negotiation as to whether the claims are valid and accepted. This may involve your management and/or lawyer. During this period, the publisher or label may provide evidence to counter any claims and discussions will continue until a mutually acceptable settlement can be reached. An audit settlement document will then be prepared and signed. If your accounts are unrecouped the settlement may be used to recoup the balance, if your account is in a payable position the settlement will be paid out either as an adjustment to your next statement or as a separate payment. Once the audit is complete, the statement period covered will not be available for further audit.
Why should I consider an audit?
Even if you are happy with the accounting you receive, you should consider undertaking an audit. It is a valuable tool to ‘health check’ your royalty income and ensure that you are being fully accounted to. Where there is human involvement in the accounting process there is always a possibility of a mistake being made. Many audit findings and claims relate to mistakes being made during the setting up of contracts within the royalty system and misinterpretations of clauses within the agreement.
In addition, an audit will show any legal deficiencies with contracts or rights that you may have with your works or masters. Given the value of the IP contained within these assets it’s very important that full and clean legal documentation is kept, which maximises their value. If these are ever sold then good documentation, historic accounts and audited statements add a considerable amount to their value.
Will auditing spoil my existing relationship with my publisher or label?
Absolutely not. Publishers and labels expect to be audited. Many companies have dedicated staff that work on the audit process.
How much is an audit and who pays for it?
This is very much dependent on the volume and complexity of the work required. Complex deals and set-ups require much more work to unpick and ensure that the royalty accounting is correct. Every audit is different and the cost will be discussed prior to the audit commencing. If the audit is successful and the amount recovered is sufficient, the publisher or label may contribute towards or pay the audit costs in full. The wording varies in each agreement but is generally along the lines of if the shortfall is the greater of £X and X% of the amount that should have been paid then the publisher or label will pay the reasonable costs of the accountants. In some cases, this is capped at a certain amount, but the exact wording will be shown in your agreement.
Where can I find out more?
Whether you’re an emerging artist, an established writer, or a rights owner with a complex catalogue, Y Royalties has the expertise, technology, and relationships to ensure you are being correctly and fully accounted to.
Our audit team brings together specialists with decades of experience across every corner of the music industry. Gary Groutage, Andy Elms, and Emma Kemp each bring deep expertise in royalty auditing and between them, they’ve seen virtually every variation of deal, dispute, and discrepancy the industry has to offer.
Feel free to get in contact with our team:
Gary.Groutage@YRoyalties.co.uk
Y Royalties is the innovation-driven, data-powered expert in music rights and royalty services. We sit at the crossroads of music, data, and finance, helping recording artists, songwriters, managers, labels, publishers, and investors gain clarity, control, and value across the entire music rights journey. With over 80 years of combined experience across major labels, publishers, and performing rights organisations, our audit team runs more royalty audits than any other UK practice — achieving claims in 95% of cases.
