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CSS Accountancy and Auditing Paper II Past Paper 2026

CSS Accountancy and Auditing Paper II 2026 carries 100 marks over 3 hours. It has 7 questions.

Marks
100
Time
3 hours
Questions
7

Years

How to attempt: Attempt ONLY FOUR questions from PART-II by selecting at least ONE question from EACH SECTION. ALL questions carry EQUAL marks.

Questions

Question 1 (Part I) is the paper's MCQs, which are not reproduced here.

SECTION-I (AUDITING)

  1. Q. 2
    Explain how the concept of true and fair view guides an auditor when management adopts accounting estimates that are technically permissible under IFRS but appear overly optimistic in light of industry conditions. Support your answer with examples and references to International Federation of Accountants (IFAC) guidelines.
    (20)
  2. Q. 3
    “Audit risk is not merely a computation; it is a judgment.” Discuss this statement in the context of inherent risk, control risk, and detection risk, with particular reference to computerized (EDP) environments.
    (20)
  3. Q. 4
    Provide a critical distinction between the following audit concepts:
    (20)
    • (a)
      Reasonable assurance and absolute assurance
    • (b)
      Tests of control and substantive procedures
    • (c)
      Misstatement and material misstatement
    • (d)
      Management’s responsibility and auditor’s responsibility under the Companies Ordinance 1984

SECTION-II (BUSINESS TAXATION)

  1. Q. 5
    Ms. Sana, an individual taxpayer, has provided the following data for the Tax Year 2024. Analyze her income components and determine her net tax position under the Income Tax Ordinance, 2001.
    ParticularsPKR
    A. Salary income (gross)1,800,000
    B. House rent allowance (40% of basic salary)
    C. Net Income from property450,000
    D. Capital gain on listed securities (held for 14 months)120,000
    E. Profit on debt (from a bank deposit)90,000
    F. Donation to an approved NPO (eligible for tax credit)60,000
    G. Business loss carried forward from prior year80,000
    H. Advance tax paid35,000
    I. Tax already withheld on profit on debt10,000
    • (a)
      Analytical Tax Treatment and Regime Justification. Critically analyse the tax regime (NTR, FTR, or SBI) applicable to Capital Gain (D) and Profit on Debt (E). Justify the inclusion of Income from Property (C) in the Normal Tax Regime (NTR) and explain the policy objective behind providing a tax credit for Donation (F).
      (10)
    • (b)
      Computation and Final Tax Position
      (10)
      • (I)
        Compute Ms. Sana's Total Taxable Income under the NTR.
      • (II)
        Compute her Final Tax Liability (including tax on FTR/SBI items, if any).
      • (III)
        Determine the Net Tax Payable/Refundable amount.

    Show all workings clearly, referencing the applicable tax status for each major component.

  2. Q. 6
    Using the Income Tax Ordinance, explain the income tax implications of the following independent scenarios:
    (20)
    • (a)
      A Pakistani resident receives consultancy fees from foreign clients, deposited in a foreign bank account.
    • (b)
      A company pays “marketing facilitation charges” to agents but does not withhold tax.
    • (c)
      A taxpayer records a gain on disposal of machinery but treats it as capital gain instead of business income.
    • (d)
      An individual receives unexplained credits in his bank account and claims they represent informal loans.
    • (e)
      An AOP claims tax credit on investments despite negative taxable income.

    For each case, classify income, apply relevant rules, and provide the correct tax treatment.

SECTION-III (BUSINESS STUDIES AND FINANCE)

  1. Q. 7
    “Financial markets are the backbone of a modern economy.” Discuss this statement in the context of Pakistan with reference to the money market, capital market, and financial institutions.
    (20)
  2. Q. 8
    (20)
    • (a)
      A firm is analysing the following mutually exclusive projects. The cost of capital is 12%, but management requires a risk-adjusted discount rate of 18% for volatile projects.
      (10)
      YearProject XProject Y
      0–600,000–600,000
      1160,000200,000
      2180,000150,000
      3220,000170,000
      4350,000300,000

      Required:

      • (i)
        Compute NPV of both projects at 18%.
      • (ii)
        Recommend which project to choose under:
        • Value maximization
        • Risk minimization
        • Cash flow stability

      Explain clearly with reference to financial management principles.

    • (b)
      Critically evaluate the limitations of IRR, Payback Period, and Accounting Rate of Return as capital budgeting tools. Explain how NPV addresses these limitations and why it is considered the superior method for investment decisions.
      (10)
  1. Part-II is to be attempted on the separate Answer Book.
  2. Attempt ONLY FOUR questions from PART-II by selecting at least ONE question from EACH SECTION. ALL questions carry EQUAL marks.
  3. All the parts (if any) of each Question must be attempted at one place instead of at different places.
  4. Write Q. No. in the Answer Book in accordance with Q. No. in the Q.Paper.
  5. No Page/Space be left blank between the answers. All the blank pages of Answer Book must be crossed.
  6. Extra attempt of any question or any part of the question will not be considered.
  7. Use of Calculator is allowed.