Audit Procedures for Marketing and Advertising Expenses Auditing marketing and advertising expenses is crucial to ensure that financial statements accurately reflect the company's expenditures and comply with accounting standards. Here are comprehensive steps involved in auditing marketing and advertising expenses: 1. Understanding Company Policies: Obtain a clear understanding of the

Question

Audit Procedures for Marketing and Advertising Expenses

Auditing marketing and advertising expenses is crucial to ensure that financial statements accurately reflect the company's expenditures and comply with accounting standards. Here are comprehensive steps involved in auditing marketing and advertising expenses:

1. Understanding Company Policies:

Obtain a clear understanding of the company's policies and procedures regarding the recognition and classification of marketing and advertising expenses.

Review internal documentation, such as expense policies and manuals, to understand the criteria for capitalization and expensing.

2. Segregation of Expenses:

Ensure proper segregation of marketing and advertising expenses from other operational costs in the general ledger.

Confirm that there is a distinct account or accounts dedicated to these expenses for accurate financial reporting.

3. Expense Authorization and Approval:

Review the authorization process for incurring marketing and advertising expenses.

Verify that expenses are approved by authorized personnel and that there are controls in place to prevent unauthorized spending.

4. Documentation Review:

Examine supporting documentation for selected transactions, such as invoices, contracts, purchase orders, and receipts.

Ensure that documentation aligns with recorded expenses and complies with relevant accounting standards.

5. Capitalization Criteria:

Evaluate whether the company capitalizes any marketing or advertising costs, such as costs related to the development of advertising materials with a future economic benefit.

Confirm that capitalization criteria are consistently applied and align with accounting policies.

6. Testing for Completeness:

Perform substantive testing to ensure that all material marketing and advertising expenses are appropriately recorded.

This may involve statistical sampling, analytical procedures, and detailed testing of transactions.

7. Review of Accruals and Deferrals:

Examine accruals and deferrals related to marketing and advertising expenses at the end of the reporting period.

Ensure that these adjustments are based on reliable estimates and are consistent with accounting principles.

8. Compliance with Regulatory Requirements:

Confirm that marketing and advertising expenses comply with any industry-specific regulatory requirements.

Consider any specific disclosure requirements related to advertising expenditures.

Fill in the Blanks Question:

In auditing marketing and advertising expenses, auditors need to ensure proper segregation of expenses from other operational costs in the __________. Reviewing the authorization process for incurring expenses helps verify that expenses are approved by __________ personnel. Documentation review involves examining supporting documents such as invoices, contracts, purchase orders, and receipts to ensure alignment with recorded expenses and compliance with relevant __________.

A) General ledger, authorized, standards
B) Financial statements, designated, regulations
C) Income statement, managerial, policies
D) Ledger accounts, authorized, guidelines