Cooperative Marketing Agreement… When should it be audited?

After several workshops, meetings with lawyers, long hours searching the internet about marketing agreements and conferences with the whole team, you need not looks further for questions around Cooperative Marketing Agreements since you have reached a document that will help outline the use of financial resources to promote a specific brand or franchise.

Since most of the effort is focused on timely distribution of the resources, you probably did not pay much attention to the details about the audit — or maybe you thought it was not appropriate to pay such attention since often these contracts are an agreement “friendship” between the parties, or you simply thought that is not necessary. This is very common situation at the time of creating a contract and I would like to stress the importance of addressing these details early in the process.

National and International legislations are responsible for ruling upon the legality of the considerations included into the agreements; however, there are several factors that must be taken into account when determining if an agreement must be audited:

  • The carrying out of a contract involves an agreement between two parties, and there is the possibility that one of the two parties does not comply with what has been established
  • The amount of items or elements that are part of the cooperative agreement is so big that it is very difficult to recognize whether it is meeting the objectives or agreed the clauses
  • The scope of the agreed spending is so extensive that often can be confused, or embezzle as an expense that is previously defined as marketing
  • Expenses accepted within the framework of a contract for cooperative marketing versus the operating expenses of a franchise are very similar and could confuse some
  • The high cost of maintaining a running resource for control functions of the agreement can lose visualization of compliance from some of the clauses of the contract or objectives

If after completing the analysis of the points made above, it was concluded that it is necessary to include within the cooperative agreement a clause stating that the contract is subject to an audit, the parties must be analyzed according to national and international regulations how the audit article should be included within the agreement.

It is recommended to use an external audit, mainly because the contract is being agreed between two parties and the outcome of the audit can influence the economic terms. It is the responsibility of the external auditor to determine the framework and standards governing their practice, noting that he/she must remain within the International Standards on Auditing, referring to ISRS 4400 “Engagements to perform agreed-upon procedures regarding financial information “.

Before you start writing any aspects concerning the audit within the cooperative contract, consider the following:

  • Confirm between the parties the scope of what will be audited in order to avoid misinterpretations or disagreement by either party
  • It is important to establish clearly the period during which the recognizing of the expenses related to the marketing structure will be held, and how will be treated costs correspond to more than one term, or those whose documentation support was received much later
  • Define timing of review by the external auditors
  • Establish responsibility for payment of the related costs of audit
  • Define the population to be subject to audit, as well as the determination of the samples to review if by terms of quantity is not possible to review all of them
  • Emphasize the importance of the availability of supporting documentation from the expenses chosen within the sample
  • Due to the nature of the marketing expense, sometimes it is not possible to obtain supporting documentation of a specific expense. For these specific cases, it is important to determine the treatment to verify that this spending has been executed.

Through working together with the auditor you are able to identify the selection of the sample size and have the type of marketing spending as the main determinant for choosing option. By being clear when define all aspects related to the items review from the cooperative marketing agreement, you can obtain short-term advantages to avoid problems that can consume valuable time of the participants.

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