Audit Procedures for Marketing Expenses: Procedure, Risks, and Assertions

The objective of auditing marketing expenses is to obtain assurance that these expenses are accurately recorded and disclosed in the financial statements.

Marketing expenses are typically one of the largest expenses for most companies, and they play a crucial role in the company’s overall financial performance.

The accurate recording and disclosure of marketing expenses is essential for the company to be able to assess the effectiveness of its marketing strategies.

Accounting Under IFRS:

Marketing expenses are typically accounted for in accordance with International Financial Reporting Standards (IFRS). Under IFRS, marketing expenses are recognized as an expense when they are incurred and meet the criteria for recognition as an expense.

Audit Risks:

The following are ten audit risks related to marketing expenses that auditors should pay attention to:

1. Classification risk: Marketing expenses may be misclassified as general and administrative expenses or as other expenses.
2. Timing risk: Marketing expenses may be recognized in the incorrect period, leading to incorrect financial statements.
3. Accrual risk: Marketing expenses may be overstated or understated through incorrect accrual accounting.
4. Amount risk: The amount of marketing expenses may be incorrect due to incorrect calculations or incorrect data.
5. Relevance risk: Marketing expenses may not be relevant to the company’s operations or its financial statements.
6. Reliability risk: Marketing expenses may be unreliable due to incorrect data or incorrect assumptions.
7. Validity risk: Marketing expenses may be invalid due to incorrect data or incorrect assumptions.
8. Completeness risk: Marketing expenses may be incomplete due to missing or incorrect data.
9. Existence risk: Marketing expenses may not exist due to fraud or other fraudulent activities.
10. Rights and obligations risk: Marketing expenses may not have the necessary rights and obligations, such as the rights to use a particular marketing strategy.

Audit Assertions:

The following are the audit assertions related to marketing expenses that auditors should evaluate:

1. Existence: Marketing expenses exist and have been incurred.
2. Completeness: All marketing expenses have been recorded and disclosed in the financial statements.
3. Accuracy: Marketing expenses have been recorded at the correct amount.
4. Classification: Marketing expenses have been classified correctly in the financial statements.
5. Timing: Marketing expenses have been recognized in the correct period.

Walkthrough Testing:

Walkthrough testing is an audit procedure where the auditor evaluates the flow of transactions through the company’s accounting system to assess the controls in place.

In the context of auditing marketing expenses, the auditor would perform walkthrough testing to assess the controls related to the recording and disclosure of marketing expenses.

The auditor would evaluate the company’s policies and procedures related to the recording and disclosure of marketing expenses, as well as the controls in place to ensure that these policies and procedures are followed.

Test of Control:

A test of control is an audit procedure where the auditor tests the effectiveness of the company’s controls related to a specific financial statement assertion.

In the context of auditing marketing expenses, the auditor would perform tests of control to assess the controls related to the recording and disclosure of marketing expenses.

The auditor would evaluate the controls in place to ensure that marketing expenses are recorded and disclosed accurately and completely. The auditor would also evaluate the controls in place to ensure that marketing expenses are recorded and disclosed in accordance with IFRS.

Substantive Audit Procedures

Substantive Audit Procedures are detailed procedures used by auditors to obtain evidence to support their conclusions regarding the accuracy of financial statements. In the context of auditing marketing expenses, substantive audit procedures may include the following:

1. Review of Marketing Budget: An auditor should review the marketing budget to assess whether it is in line with the company’s overall business strategy and whether the expenses incurred are in line with the budget.
2. Test Marketing Expense Accruals: An auditor should test marketing expense accruals to ensure that they are properly recorded and in line with the company’s accounting policies and procedures.
3. Confirm Promotions and Campaigns: The auditor should review the contracts and agreements for promotions and campaigns to confirm that the expenses incurred are in line with the agreement.
4. Perform Cutoff Tests: An auditor should perform cutoff tests to ensure that marketing expenses are recorded in the correct period.
5. Confirm Reimbursements: The auditor should review reimbursement requests to confirm that they are supported by proper documentation and in line with company policy.
6. Review of Sales Promotions: The auditor should review sales promotions to ensure that they are accurately recorded and that the expenses incurred are in line with the promotion.
7. Perform Testing of Marketing Expense Allocations: An auditor should test marketing expense allocations to ensure that they are accurately recorded and in line with company policy.
8. Perform Substantive Analytical Procedures: An auditor should perform substantive analytical procedures to identify unusual or unexpected trends or fluctuations in marketing expenses.
9. Review Supporting Documentation: An auditor should review supporting documentation such as invoices, receipts, and contracts to support the marketing expenses recorded in the financial statements.
10. Perform Inspections of Marketing Collateral: An auditor should inspect marketing collateral such as flyers, posters, and promotional items to ensure that they are in line with company policy and are properly supported.