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Advertising audit is contracted compliance audits of creative, production, and Below the Line (BTL) agencies involved in developing advertising campaigns.
Table of Contents
The primary role of an advertising agency[1] is to source products and other creative inputs from a third party. An advertising audit checks on the purchasing cycle to confirm that the procurement team of the agency implements the control that the client expects.
An advertising audit also identifies the weaknesses and offers suggestions for improved information flows.
The critical elements of an advertising audit include the following:
An advertising audit may identify local non-compliance with a creative network agency contract. It is pervasive for adopting local or contractual terms to remain in place, despite introducing a new contract. The agency remuneration determines whether the correct charging mechanism is followed. When an agency charges for time, the audit examines the recording time and controls to ensure the client receives the remuneration.
A crucial role of an agency is to source products and other creative inputs from third parties. An advertising audit follows the purchasing cycle to confirm that the agency’s procurement team is implementing the controls expected by the client. It is common for an advertising agency to use branded divisions, joint ventures, or other group companies to provide services. These should be contracted on a length basis and subject to the same level of procurement scrutiny as any third-party supplier. An advertising audit identifies weaknesses and offers suggestions for improved information flows.
Apart from gaining comfort, it is expected to learn the addressed issues. The client is very likely to receive a financial benefit in the refund. The other benefits include the identification of credit, the identification of over-servicing or income earned in the form of remuneration.
Risk management has been primarily considered a mechanism for measuring, monitoring and preventing loss. But it serves a broader purpose. Investment management risks are broadly categorized into two classes:
Firstly, alpha associated with the investment management
Secondly, when strictly characterized by loss, market risk provides opportunities for upside and downturn market risks. In contrast, operational risks have no alpha associated with them. Therefore, it is cost-effective. Regardless of the risk type, a practical risk management framework must be aligned with the investment strategy and enable the management to ensure that risk processes are efficiently defined, controlled and monitored.
The management framework is in the following steps:
Generally, the Market risk is the risk associated with adverse movements in the level or volatility of market prices.
It is the risk of financial loss associated with default movement in the credit quality of securities. It could be due to the default by the counterparty or debtor Downgrade of issues.
It is the risk of significant price reduction in a security transaction because more than the market is needed to efficiently accommodate the desired transaction size.
Controlling the risks by assigning budgets and setting parameters for the defined risks. A proactive approach to risk management involves allocating risk budgets and setting risk tolerances. The portfolio managers exercised their authority within defined parameters in their investment strategy. These parameters limit is aligned with the approach and focuses on the investment objective and strategy. Unless the client or regulatory body explicitly states it, these parameters should be guidelines rather than hard limits.
Generally, the monitoring of the risks, escalating exceptions and generating reports systematically and objectively by an independent risk team. Once the risks have been defined, a systematic process of regular monitoring and reporting of risks by an independent team ensures the validation and consistency of the approach. The independent team generates analytics and reporting to ensure that all portfolios are subject to the same level of investment risk management. The objective is to achieve exception reporting where the most significant exposures and risk factors are highlighted based on the parameters and controls placed around the risks.
In the process, establishing oversight on the entire process. It segregates roles and responsibilities, has clear demonstration, and reviews and feedback in the risk management process to ensure clients and investors that a robust investment risk management process is in place. Deviations from expected targets, ranges or strategies exist in portfolios but within the proper protocol of monitoring, escalating, challenging and management.
Risk management is a dynamic field, and any set of best practices is bound to evolve. The risk framework enables managers to ensure that the investment management process is aligned with r risk tolerance expectations. It provides a starting point for investment managers to establish their risk management framework.
Also Read: Media Audit – Its Importance and How to Prepare it?
Minakshi Bindhani has completed LL.M. with a specialization in Criminal Law from Madhusudan Law University, Cuttack, Odisha. She is more inclined toward legal research and writing and have prior experience in Civil and Criminal litigation and content writing.
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