If you have a licensed portfolio, protecting and maximizing royalty income is a key goal. In order to ensure you are receiving what you are entitled to, you need to be proactive rather than reactive in minimizing the risks of being underpaid. A royalty audit provides a company that licenses services or its intellectual properties with a level of assurance that the amounts due in accordance with the license agreement have been correctly calculated, properly reported and paid in a timely fashion.

Many license owners do include an audit clause in their royalty or license agreements but have failed to enforce it and conduct spot audits. As intellectual property assets gain increased recognition, however, royalty management is critical not only to increase cash flow but to protect intellectual property assets from being counterfeited and sold in the black market.

A royalty audit can also identify and resolve contractual interpretation issues, thus enhancing the quality of future reporting and accounting and the relationship between licensors and licensees.

How International Risk Helps You Better Manage Your Royalty Assets

International Risk has a global capability and offers a team with strong forensic accounting, investigative and local language skills together with a broad range of industry experience to serve clients around the world.

We assist clients in a full range of licensing and royalty collection challenges including:

• Conducting forensic-based audits to ensure compliance by a licensee or business partner with the terms of complex agreements and royalty reporting procedures; and
• Assisting in the development of licensing compliance programmes including strategies to identify, monitor and enforce your licenses.

Our Audit Approach

During a royalty audit, we:

• Gain an in-depth understanding of the royalty agreement(s);
• Gain an in-depth understanding of the licensed technology, trademarks, or other intellectual assets;
• Discuss agreements with individuals within your organization to understand the current relationship with the licensee;
• Identify areas of exposure;
• Determine whether the licensee’s understanding of its obligations matches that of the licensor;
• Review historical royalty reports and related correspondence;
• Review licensee’s royalty calculation methods and obtain an understanding of the source(s) of supporting financial information;
• Perform a preliminary “desk audit” of information received from the licensee;
• Perform a “field audit” at the licensee’s location if deemed necessary, based on the results of the “desk audit”;
• Present findings on under-reported royalties and compliance programme improvement recommendations to client management;
• Assist in settlement negotiations and the resolution and recovery of the under-reported royalties; and
• Design compliance programmes for future monitoring of licensees.

• Clerical errors;
• Accounting mistakes;
• Misinterpretation of license agreement language;
• Development of new products that use the licensed technology but not being included in the royalty reports; and/or
• Intentional understatement.