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Obellaworldstar
Music Producer @ Self-employed
Music Producer @ Self-employed
The Audit clause
<p>SO, WHAT HAPPENS IF AN AUDIT DISCOVERS THAT THE LABEL'S ACCOUNTING IS WRONG?</p><p><br/></p><p>This is the part I wanted to discuss today.</p><p><br/></p><p>The other day I explained why an artiste needs an AUDIT CLAUSE in a record deal.</p><p><br/></p><p>But having the right to audit is only half of the protection.</p><p><br/></p><p>The contract should also tell you what happens when the audit finds a problem.</p><p><br/></p><p>Let's say an artiste audits the label's accounts and discovers that the label underreported some income or made deductions that weren't allowed under the contract.</p><p><br/></p><p>What happens next?</p><p><br/></p><p>The contract should already provide the solution.</p><p><br/></p><p>The artiste should be able to claim the outstanding amount discovered through the audit.</p><p><br/></p><p>But there is another important question:</p><p><br/></p><p>Who pays for the audit?</p><p><br/></p><p>Auditing financial records isn't free.</p><p><br/></p><p>If the artiste had to spend money to discover that the label's accounting was wrong, the contract can provide that the label bears the reasonable cost of the audit when the discrepancy reaches an agreed level.</p><p><br/></p><p>For example, the contract could hypothetically say:</p><p><br/></p><p>«“If an audit reveals that the Label has underpaid the Artist by more than 5% of the amount properly due, the Label shall pay the outstanding amount and reimburse the Artist for the reasonable cost of the audit.”»</p><p><br/></p><p>Now, 5% is only an example.</p><p><br/></p><p>It isn't a universal industry standard.</p><p><br/></p><p>The percentage can be higher or lower depending on the negotiation and the nature of the deal.</p><p><br/></p><p>What matters is that the contract clearly states:</p><p><br/></p><p>What level of discrepancy triggers the protection.</p><p><br/></p><p>Who pays for the audit.</p><p><br/></p><p>How the underpayment will be corrected.</p><p><br/></p><p>And, where agreed, what other consequences apply.</p><p><br/></p><p>This is why I tell artistes not to look at a contract as just a document showing how much percentage they're getting.</p><p><br/></p><p>Look at what happens when things go wrong.</p><p><br/></p><p>Because the best time to agree on the solution to a dispute is before the dispute happens.</p><p><br/></p><p>So don't just ask:</p><p><br/></p><p>“Can I audit?”</p><p><br/></p><p>Ask:</p><p><br/></p><p>“What happens if the audit finds that I'm owed money?”</p><p><br/></p><p>That small part of a contract can become very important when the numbers don't add up.</p><p><br/></p>
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