You are an accountant working at Nimmans Ltd, a listed company. One of your key

customers, Soil Makers shared that it is currently facing cash flow difficulty due to an

unsuccessful investment and they might have to cancel their future orders.

Your finance director, James commented to you that "Since Soil Makers had brought us so

much business in the past ten years, let's do them a favour. First of all, we can increase their

credit limit to a higher amount so that they can still purchase from us. Please speak to the

Credit Department on this."

When James sensed your resistance to his suggestions, he explained his rationale, "Look,

Soil Makers is our major customer. We really do not wish to lose their business, do we? If

they cancel orders now, our sales for the year will suffer, my department's commission and

the bonus will be affected, so will our whole company's"

Required:

If you are the accountant:

(i)

Identify and explain the fundamental principle which is at risk and

(ii)

Provide an appropriate safeguard.