1. M Ltd., a private limited company, decided to change the current auditor.

Your firm is pursuing for

the audit service. You had a meeting with the management of M Ltd. where management informed
that they have initially decided to select your firm but your proposed fee is higher than current audit
fee. Management is interested to reduce its current expenditure and expecting a lower audit fees
than earlier years. Management will award the audit engagement to your firm if your firm lower the
initially proposed fee. How you will respond to management’s request? [Marks 5]

2. Recently your firm has been awarded an audit engagement from P Ltd. Upon receiving the
appointment letter you sent a letter to previous auditor for professional clearance. In reply to your
letter, previous auditor has informed you that they have not received any notice from the client
regarding auditor change and hence they are still holding the position of auditor for the entity. How
will you resolve the issue? [Marks 5]

3. LVL Ice Cream Ltd. is a company that is expanding rapidly and is regularly opening new ice-cream
parlors, thus recruiting new employees. The payroll is processed in-house in the HR department using
a Payroll software. The CEO is worried that fictitious employees could be included on the payroll by
way of collusion between dishonest employees from the HR department and operations department.
Please advise the most likely internal controls to be established to prevent inclusion of fictitious
employees and disbursement of salaries to them. [Marks 5]