(e) You are the partner in charge of the audit of LMN. The following matter has beenbrought to your attention in the audit working papers.During the year LMN spent $500,000 on applied research, trying to find an applicationfor a new process it had developed. LMN’s management has capitalised thisexpenditure. LMN management is refusing to change its accounting treatment as itdoes not want to reduce the year’s profit. The draft financial statements show revenueof $40 million and net profit of $4.5 million.(f) RS an employee, prepares monthly management accounting information for XYZ whichincludes detailed performance data that is used to calculate staff bonuses. Based oninformation prepared by RS this year’s bonuses will be lower than expected.RS has had approaches from other staff offering various incentives to make accrualsfor additional revenue and other reversible adjustments, to enable all staff (includingRS) to receive increased or higher bonuses.(Total for Section B = 30 marks)End of Section BSection C starts on page 12Required:(i) Explain what is meant by “materiality” AND whether the matter highlightedabove is material.(3 marks)(ii) Identify the type of audit report that would be appropriate to the abovestatements, assuming that LMN’s management continue to refuse to change thefinancial statements.(2 marks)(Total for sub-question (e) = 5 marks)Required:Explain the requirements of the CIMA Code of Ethics for Professional Accountants inrelation to the preparation and reporting of information AND the ethical problems thatRS faces.