Is it right to conclude that if I call or indicate an advantage, I MUST (regardless of the result or outcome) punish the defense and/or reward a free kick to the offense, provided that the advantage is within reasonable time?

USSF answer (April 20, 2009):
No, you would not be correct to conclude this. You will find all you need on this matter in the USSF publication “Advice to Referees on the Laws of the Game”:

Referees have the power to apply (and signal) the advantage upon seeing a foul or misconduct committed if at that moment the terms of the advantage clause (Law 5, 12th item) were met. Applying advantage permits the referee to allow play to continue when the team against which the foul has been committed will actually benefit from the referee not stopping play.

The referee must remember that the advantage applies to the team of the fouled player and not just to the fouled player. Soccer is a team sport and the referee is expected to apply advantage if the fouled player’s team is able to retain or regain control of the ball.

The referee may return to and penalize the original foul if the advantage situation does not develop as anticipated after a short while (2-3 seconds). Referees should note that the “advantage” is not defined solely in terms of scoring a goal. Also, a subsequent offense by a player of the offending team must not be ignored while the referee allows the anticipated development of the advantage. Such an offense may either be recognized by stopping play immediately or by applying the advantage clause again.  Regardless of the outcome of the advantage call, the referee must deal appropriately with any misconduct at the next stoppage, before allowing play to be restarted. (See also 12.27.)

NOTE: After observing a foul or misconduct by a player, the referee decides to apply advantage and within a second or so, the ball goes out of play across a boundary line. The referee may still penalize the original offense.

The referee may also apply advantage during situations that are solely misconduct (both cautionable and send-off offenses) or to situations that involve both a foul and misconduct.

The use of advantage as described in Law 5 is strictly limited to infringements of Law 12 — both the section covering fouls and the later section on misconduct .  Other offenses under the Laws of the Game (e. g., violating Law 15 on a throw-in, offside, “second touch” violations at a restart, etc.) are not subject to the application of advantage.  As with any other infringement of the Law (e. g., the lack of corner flags, a whistle blown by a spectator, the illegal entry onto the field of a spectator), these are subject to a determination by the referee that the infraction is doubtful (uncertain that it occurred) or trifling (the infringement occurred but had no importance for the course of play).  For example, if a ball comes onto the field of play from a nearby field, it is not necessary to stop play unless and until this “foreign object” actually interferes with play or causes any confusion for the players.  Deciding not to stop play in such a case is not based on applying advantage but of following the time-honored principle embodied prior to 1996 in International Board Decision 8 of Law 5 (dropped in 1997 but still considered a core value in the Laws of the Game — see the first paragraph of Advice 5.5, above).

Referees must understand that advantage is not an absolute right. It must be balanced against other issues. The giving of the advantage is not required in all situations to which it might be applied. The referee may stop play despite an advantage if other factors (e.g., game control, severity of a foul or misconduct, possibility of player retaliation, etc.) outweigh the benefit of play continuing. As a practical matter, referees should generally avoid a decision to allow advantage for fouls which happen very early in the match, for fouls performed in front of the team areas, or for misconduct involving violence unless the chance for a goal is immediate.

A common misconception about advantage is that it is about deciding if a challenge is a foul. On the contrary, that decision has already been made because advantage cannot be applied to anything which is not a foul (meaning a violation of Law 12). Advantage, rather, is a decision about whether to stop play for the foul. Accordingly, giving the advantage is “calling the foul” and thus it must be as obvious to the players as signaling to stop play.

Inconspicuous advantage signals are as much to be avoided as a whistle which cannot be heard. Likewise, however, using the advantage signal to indicate that something is not a foul or misconduct, or is a doubtful or trifling offense, is equally wrong. 

In determining whether there is persistent infringement, all fouls are considered, including those to which advantage has been applied.