Freddie Wee, a senior audit manager for Bovia & Associate, has recently been informed that the firm plans to promote him as partner within the next year or two if he continues to perform at the same high-quality level as in the past. Freddie excels at dealing effectively with all people, including client personnel, professional staff, partners, and potential clients. He recently built a bigger home for entertaining and has joined the citys most prestigious golf and tennis club. He is excited about his future with the firm. Freddie has recently been assigned to the audit of Merwick Bhd (Merwick), a large wholesale company that export throughout the world. Merwick was listed in the Bursa securities 10 years ago. It is one of Bovia & Associates most prestigious clients. During the audit, Freddie determines that Merwick uses a method of revenue recognition called bill and hold that has recently been questioned by Malaysia Institute of Accountants (MIA), financial statements review committee. After considerable research, Freddie concludes that the method of revenue recognition is not appropriate for Merwick in view that the company is listed and the regulations of Securities Commission (SC) must be complied. He discusses the matter with the engagement partner, who concludes that the accounting method has been used for more than 10 years by the client and is appropriate, especially considering that the client did not file with SC in the previous year. The partner is certain that the firm would lose the client if the revenue recognition method is found inappropriate. Freddie argues that the revenue recognition was appropriate in the prior years since the company was not listed, but the SC ruling makes it inappropriate in the current year. Freddie recognises the partners responsibility to make the final decision, but he feels strongly enough to state that he plans to follow the requirements of Malaysia Standard on Auditing and include a statement in the audit files that he disagrees with partners decision. The partner Ms Kathrina Lok informs Freddie that she is unwilling to permit such a statement because of the potential legal implications. However, she is willing to write a letter to Freddie stating that she takes full responsibility for making the final decision if a legal dispute ever arises. She concludes by saying Freddie, partners must act like partners, not like loose cannons trying to make life difficult for their partners. You have some growing up to do before I would feel comfortable with you as a partner.

Required: Use the ethical framework American Accounting Association (AAA) to resolve the ethical dilemma. (35 marks)

Note : For step 2 of AAA students should discuss the ethical issue(s) of the case including how each parties related to the case are affected.