# Audit of Revenue Items in Banks
## Auditor's Primary Objective
When auditing bank income, the auditor must obtain reasonable assurance that:
- Recorded income arose from actual transactions in the relevant period and pertained to the bank.
- There is no unrecorded income.
- Income is recorded at the appropriate amount.
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## RBI Materiality Threshold for Income Recognition
An item of income is material (and must be accrued per the relevant Accounting Standard) if it exceeds:
- 1% of total income (gross basis), OR
- 1% of net profit before taxes (net of costs basis).
If an income item falls below this threshold, the bank may recognise it on a cash (receipt) basis, and the auditor need not qualify the report on that account.
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## Accrual vs. Cash Basis — Key Distinctions
| Type of Income | Basis of Recognition |
|---|---|
| Standard account — interest, fees, commission | Accrual basis (as earned) |
| NPA account — any income | Cash basis (only when actually realised) |
| Interest on TD/NSC/IVP/KVP/Life policy-backed advances | Accrual on due date (if adequate margin exists) |
| Bills purchased — discount | Must be apportioned between years; not netted against rediscount cost |
| Fees on re-negotiated/rescheduled debts | Accrual spread over the extension period |
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## Specific Audit Points
Bills Purchased Outstanding at Year-End
- Discount received must be apportioned between current and next year (matching concept).
- Interest/discount paid on rediscount from other financial institutions must not be netted against discount earned — show gross.
Bills for Collection
- Verify the procedure for crediting the party on whose behalf the bill was collected.
Fees and Commissions
- Test-check fees on bills for collection, letters of credit, and bank guarantees.
- Fees from rescheduled/re-negotiated credit must be spread over the rescheduled period, not recognised upfront.