Edmund Hillary, Chief Financial Officer of Titiwangsa Berhad is involved in a meeting with the firms external auditors KPNH. Titiwangsa Berhad is a major client of KPNH. KPNH have noted several adjusting entries that they believe should be reflected in the current periods financial statements, which ends on 31 December 2020. Specifically, KPNH have questions regarding RM500,000 of cash that has been received (and recorded as revenue) but not yet earned. KPNH feel that this amount should be recorded as a liability.

Edmund argues that the companys accounting policy has always been to recognize revenue when the cash is received. He goes on to say that the cash was received in December, earned in April and no adjustment was made. Edmund argues that no adjusting entry should be made this year.

Requirement:

(a)

As a member of the external auditing team, do you agree with Edmunds arguments? Justify your answer (if you believe that an adjusting entry needs to be made, please include it in your answer).

(2 markah/marks)

(b) Based on the scenario above, identify and explain three fundamental principles from the ICAEW Code of Ethics that the external auditing team needs to consider when preparing the financial statements for Titiwangsa Berhad.

(6 markah/marks)

(Jumlah/Total: 8 markah/marks)