Advertising and marketing costs

Consumer goods companies spend heavily on advertising and promotion, and a single campaign often spans a year end: the advert is filmed in one year, the airtime is paid in advance and the leaflets sit in a warehouse until the launch. When each cost hits profit or loss is set by a short but strict rule in IAS 38. This guide explains the rule, works through a campaign across a year end, and covers printed materials, agencies, sponsorships and influencers, payments to retailers that are not advertising at all, websites, and the US GAAP choice that can give a very different answer.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. 4 minute read.

Short answer

Advertising and marketing costs are expensed under IAS 38, never capitalised as an intangible asset, even when they build a brand that will earn money for years. The expense is recognised when the cost is incurred: for goods such as leaflets, catalogues and display materials, when the company has the right to access them, and for services such as producing an advert or buying airtime, when it receives the services. A payment made before that point is a prepayment, an asset until the goods or services arrive. Costs are not deferred until a campaign runs or until materials are handed out. Under US GAAP, companies can instead choose to expense advertising the first time it takes place. In this guide's example, a US$ 3,000 thousand campaign straddling a year end is expensed 1,000 thousand this year under IFRS.

At a glance

Accounting
Expense, never an intangible asset
Goods
Expensed when available to the company
Services
Expensed when received
Paid in advance
Prepayment until received
Co-op advertising with retailers
Usually reduces revenue
US GAAP
Option to expense when first run
Advertising and marketing costsAccounting: Expense, never an intangible asset; Goods: Expensed when available to the company; Services: Expensed when received; Paid in advance: Prepayment until received; Co-op advertising with retailers: Usually reduces revenue; US GAAP: Option to expense when first run.KEY FACTS AT A GLANCEAdvertising and marketing costsAccountingExpense, never anintangible assetGoodsExpensed when availableto the companyServicesExpensed when receivedPaid in advancePrepayment until receivedCo-op advertising with retailersUsually reduces revenueUS GAAPOption to expense whenfirst runTax BakersAdvertising and marketing costsAccounting: Expense, never an intangible asset; Goods: Expensed when available to the company; Services: Expensed when received; Paid in advance: Prepayment until received; Co-op advertising with retailers: Usually reduces revenue; US GAAP: Option to expense when first run.KEY FACTS AT A GLANCEAdvertising and marketing costsAccountingExpense, never an intangible assetGoodsExpensed when available to the companyServicesExpensed when receivedPaid in advancePrepayment until receivedCo-op advertising with retailersUsually reduces revenueUS GAAPOption to expense when first runTax Bakers
Key facts at a glance, as set out in this guide.

What does IAS 38 say about advertising and marketing costs?

IAS 38 lists expenditure on advertising and promotional activities, including mail order catalogues, as an expense when it is incurred, because it develops the business as a whole rather than a separately identifiable intangible asset. It then defines incurred precisely. For goods, the cost is incurred when the company has the right to access them, usually when they are delivered or made available to it. For services, the cost is incurred when the company receives them. A company can recognise a prepayment only when it pays before it has the right to access the goods or before it receives the services. There is no option to hold costs on the balance sheet until a campaign runs, and only brands bought from others are ever recognised as assets; see brand valuation and impairment. See IAS 38 intangibles.

Advertising and marketing costs: a campaign across a year end

A snacks company prepares a launch campaign at the end of its financial year, which ends on 31 December. In December, an agency films the television advert for US$ 600 thousand; printed leaflets and in-store display materials costing 400 thousand are delivered to the company's warehouse, ready to go to stores in January; and the company books 2,000 thousand of airtime for January to March, paying 1,200 thousand in advance in December. The advert first runs on 2 January.

US$ thousandThis yearNext yearWhy
Filming the advert6000The production service was received in December
Leaflets and display materials4000The company had the right to access them on delivery
Airtime02,000Received as the advert is broadcast; 1,200 paid early is a prepayment
Total expense under IFRS1,0002,000
When the campaign is expensed (US$ thousand)When the campaign is expensed (US$ thousand)1,0000This year2,0003,000Next yearIFRSUS GAAP, expensed when the advert first runs
IFRS expenses filming and materials before the campaign starts.

Under IFRS, 1,000 thousand is expensed this year even though no consumer has seen the campaign, because the company has already received the filming service and the printed materials. The 1,200 thousand paid for airtime is a prepayment at the year end, and the remaining 800 thousand is a commitment, not a liability, until the airtime is received. Under US GAAP, a company with a policy of expensing advertising when it first takes place could defer the filming cost until the advert first runs in January, and could hold the leaflets as prepaid supplies until they are used, so it would show no expense this year.

When are catalogues, leaflets and displays expensed?

When the company has the right to access them, not when they are sent to customers or put up in stores. The IASB added this clarification in 2008 because some companies were holding catalogues as assets until they were distributed. Point-of-sale materials such as shelf strips, posters and cardboard display units are treated the same way. Durable equipment that the company keeps and uses over several years, such as branded refrigerators placed in shops, is different: it is the company's property, plant and equipment if it keeps control of it. See incentives paid to retailers.

What about agencies, sponsorships and influencers?

Creative and media agency fees are expensed as the agency performs the work. A sponsorship paid in advance for several seasons is a prepayment, expensed over the seasons as the company receives the sponsorship rights, such as logo placement and hospitality. Payments to influencers are expensed as the content is delivered. Volume rebates from media owners or agencies reduce the advertising expense they relate to when the company is entitled to them. For the media owner's side, see advertising revenue.

When are marketing payments not advertising costs?

Payments to retailers for co-operative advertising, leaflet features or end-of-aisle displays are usually consideration payable to a customer under IFRS 15, so they reduce revenue rather than being advertising expense, unless the company receives a distinct service at fair value. Coupons, loyalty points and cash-back offers also reduce revenue. Free goods given with purchases are part of the sale, while samples given away without a purchase are a marketing cost. So two companies with the same marketing budget can report different revenue depending on the mix. See trade promotion spending and free goods and samples.

What about websites and digital content?

Under the IFRS guidance on website costs, content developed mainly to advertise and promote a company's own products is expensed when incurred. The development of a website or app that will generate revenue directly, such as an online shop, can be capitalised if it meets the IAS 38 criteria for development costs. Fees for social media management and online advertising are services, expensed as received. See software and cloud costs.

How does US GAAP differ?

Under ASC 720-35, advertising costs are expensed either as incurred or the first time the advertising takes place, an accounting policy choice applied consistently to similar advertising, and companies disclose the total advertising expense for each period. Brochures and catalogues can be treated as prepaid supplies until they are no longer owned or expected to be used. Certain direct-response advertising can be capitalised and amortised if strict conditions are met, which is rare for consumer goods companies. IFRS has none of these options. See FMCG accounting.

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Questions people ask

Can advertising costs be capitalised under IFRS?

No. IAS 38 requires advertising and promotional costs to be expensed when incurred; only payments made in advance can be a prepayment.

When are catalogues and leaflets expensed under IAS 38?

When the company has the right to access them, usually on delivery, not when they are distributed.

Is the cost of producing a TV advert deferred until it airs?

Not under IFRS: it is expensed as the production services are received. US GAAP allows a policy of expensing it when the advert first runs.

Are co-operative advertising payments to retailers an expense?

Usually not. They are consideration payable to a customer and reduce revenue unless they buy a distinct service at fair value.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 38 Intangible Assets
  2. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers
  3. FASB Accounting Standards Codification: Topic 720, Other Expenses (advertising costs, 720-35)

Rules and fees change. If you are reading this long after October 10, 2026, confirm the figures with the source before you rely on them.

IAS 38IAS 38 intangible assets explainedFMCGFMCG accounting: the key IFRS issuesFMCGTrade promotion spending

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This guide is general information. It is not tax or legal advice for your situation.