Audit Procedure for Advertising Expenses: (Risks and Assertions Include)


Advertising expense is one of the operating expenses that joint with other expenses to operate the business. To perform effective and sufficient testing on this expense, the auditor has to focus on both controlled testing and control validation.

Firstly, the auditor has to perform understanding and study on overall picture of advertising expense before going into detail to its audit procedures.

Understanding Control:

Getting more understanding of the nature of the advertising expense is an advantage for auditors to design audit procedures.

Advertising expense is an expense account presented in the Income Statement of the company. The position of this account is varied based on account code and classification by Accountant.

Normally, this account is under selling expense or operating expense. The advertising expense occurs when the Company needs to advertise its goods and service.

The Company has to seek the advertising company that could provide the services. Contract for the advertising service is subjected to be made and signed as agreed by these two parties.

Auditors should obtain those contracts and summary them to get more understanding and their control on contract preparation. The audit procedure will be designed after the internal control is validated.


  • Completeness: To ensure the completeness of the advertising expenses account in the income statement, auditor has to obtain advertising schedule to reconcile with advertising contract listing. If there is discrepancy between these two listings, management’s explanation is required.
  • Accuracy: This assertion is concerning about the actual amount of the advertising expense which presented in the income statement well as in the advertising contract listing. It means that amounts and other data relating to transactions have been recorded at the correct amounts. For instance, amount appearing in the advertising contract is reflected to actual advertising expense amount to be paid to suppliers.
  • Existence: There are the risks that the advertising contract and schedule that the Company agreed with its suppliers (advertising service provider) might not be existed. Auditor should perform checking on the advertising contract by selecting some contract for vouching.
  • Presentation and Disclosure: This assertion concern the disclosure of important information that matters to the users of financial statements. Those include the accounting policy, significant contract, as well as authorized person who could sign on the contract.
  • Cut-off: One of assertion that auditor should focus on. If the cut-off is not properly check and perform, the amount of the advertising expense which presented in the income statement will be understated/overstated.
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Common Risks Related to advertising expense audit:

Audit risks related to advertising expense are different based on the auditor’s understanding of its control, the nature of the expense, and also the nature of the Company. The following are the risks that normally come up when performing an audit on the advertising expenses;

  • Discrepancy between balance per recording and its supporting document: It is important for auditor to perform test of detail by selecting some sample of the advertising transaction to check.
  • Significant variance between GL amount with TB amount of advertising expense account and its supporting documents and management could not explain to the auditor. In this case auditor needs to ensure that the variance is explained with proper acceptable explanation. There might be an omission of advertising expense transaction or accountant fails to post some transaction into the system.
  • Fictitious contract: The contract is prepared by unauthorized person and lead to financial loss of the Company. This indicated that the Company has no proper authorization matrix.

Audit Procedures:

  • Reconcile GL and trial balance (TB) of advertising expense account and with advertising contract listing (if any): Auditor should obtain financial statements for the period of auditing as well as relevant period. Before working on the GL of this expense, auditor should make sure that the GL and the TB are reconciled.
  • Testing by vouching through targeted or sampling testing over the working GL. Agreed to Contract is an important key done for the testing.
  • Perform analytical review on the advertising expenses that records in the current period compared to the previous period and check if the trend or variance is in accordance with the audit’s understanding of the client nature of business. The auditor should seek an explanation from the management of the company if the differences are sound unusual.
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