America’s new Public Company Accounting Oversight Board aims to achieve better disclosure of corporate ad spending – and in particular an end to the practice of using estimated rather than actual ad expenses in calculating quarterly earnings.
Douglas Carmichael (61), the new chief auditor for the board, defines his paramount objective: “We want to set standards that are in the public interest,” he said. “We want to make it clear that the auditor’s role is to protect the investor, that the investor is the primary stakeholder.”
As to advertising accounting issues, Carmichael is aiming for better disclosure of vendor rebates in advertising allowances that retailers get from suppliers. “The accounting standards in that area could be tighter,” he opined.
Among the practices of which he disapproves are those used by a number of major advertisers (among them Gillette, Colgate-Palmolive and Kimberly-Clark), of estimating quarterly advertising outlays in the first three quarters of the fiscal year before reporting actual spending in the year-end report.
The laws governing this practice are contradictory.
A 1993 regulation requires companies to disclose actual ad expenses annually, but an earlier (1970) and still active rule permits quarterly estimation of expenses – a loophole that could allow a company to manipulate the expense line to smooth quarterly earnings.
Although Carmichael insists that eradicating quarterly ad expense manipulation is not a high priority, he cites it as “a good example” of longer-term issues that should be addressed.
As to the accounting profession’s own advertising, he was scathing. Accountants, he said “may talk the talk, but they don't walk the walk. Many firms are saying the right thing in their ads, but I haven't seen the follow-through in [that] they're actually doing it. The importance of advertising in the economy is to get your real message across, not to fool people.”
Data sourced from: AdAge.com; additional content by WARC staff