According to Facebook who had to issue a statement on the matter, “Facebook does not use microphone audio to inform advertising or News Feed stories in any way. Businesses are able to serve relevant ads based on people’s interests and other demographic information, but not through audio collection.”
The original report came from The Independent who said that a USF professor discovered that Facebook was serving her ads for products based around topics that she had discussed about with her phone near her. Based on this, she suspected that Facebook was actually listening in on her conversations in order to determine what ads she might be interested in.
It doesn’t help the fact that Facebook requires permission to access the microphone on your smartphone which we guess would fuel the speculation, but it seems that this is only used to identify music and TV shows. For those who are still a little paranoid, don’t worry because you can easily disable microphone access in the settings on your phone.