Articles

Audits Require Depth of Knowledge, Not Just Ability to Audit

David Brocklehurst, MD – Asia-Pacific

David Brocklehurst, MD – Asia-Pacific for FirmDecisions, argues that auditors need local market and industry knowledge, not just formal skills.

Many people talk about Asia as if it were a single country. But, in reality, Asia is a sprawling continent blending
cultures, languages, religions, currencies, technology, and extremes of wealth and poverty. We’ve been conducting media and creative agency audits across the region for approaching 20 years. So while it’s
important that we know how ad agency finance departments work, it’s to our clients’ advantage that we know what to expect from each market’s business culture. Some of the business critical nuggets we’ve picked up over the years include:

  •   In Taiwan, there are monthly volume bonuses, not just annual.
  •   In several countries, some vendors offer discounts for early payment, although advertisers are not always told this.
  •   In South Korea, clients act as Principal in the relationship with vendors.
  •   In China, some vendors pay Agency Volume Bonuses (AVBs) quarterly, whereas agencies credit clients only annually.
  •   In Australia, media credits arise because clients are billed what was booked. This isn’t necessarily what the vendor bills.
  •   In Thailand, some outdoor vendors offer ‘off invoice’ discounts.
  •    In Japan, agencies often provide a Target Audience Rating Point (TARP1) replenishment scheme, which guarantees planned TARPs, sometimes at agency expense and often offset by retaining AVBs.
  •   In the Philippines, advertisers usually pay vendors direct, after agencies have reconciled and approved payment.
  •   Agencies use a variety of financial systems including BCC, TSS, Pegasus, Adept, and SAP.

It’s this kind of differentiated, country-specific knowledge that separates the experts from the also-rans of compliance auditing. This is why we find it perplexing that several large agency groups routinely tell their clients that they only allow one of the Big Four accounting firms to conduct financial compliance audits – firms often lacking the footprint and sensitivity to build and deploy this depth of local knowledge and expertise.

From the perspective of good corporate governance, it’s definitely not best practice for the very agencies involved in transacting media to influence the choice of the firm that audits their work. The choice of auditor should rest with clients, and of course this could be one of the Big Four. But, the selection should come from a pool of all independent audit firms, including specialists.

As the Incorporated Society of British Advertisers (ISBA) says, in answer to the question ‘Who should perform the audit?’:

An audit should be performed by a competent and independent company – Given the complexity of the relationship, the use of a specialist auditor is recommended and the client should always retain the right to determine the choice of auditor.

So, when it’s time to renew agency contracts, advertisers should be alert to the terms of the ‘Right to Audit’ clause, and ensure that their choices aren’t limited by agency preferences.