# Audit of Other Income

## Recognition Principles

### Interest Income on Fixed Deposits

Recognised on a time proportion basis, considering:

Amount outstanding
Applicable interest rate

### Dividend Income

Recognised in P&L only when ALL of the following are met:

Entity's right to receive payment of dividend is established (i.e., declaration by investee company).
It is probable that economic benefits associated with the dividend will flow to the entity.
Amount of dividend can be measured reliably.

### Gain/(Loss) on Sale of Investment in Mutual Funds

Recorded on transfer of title from the entity. Computed as:

> Redemption price − Carrying value of investments

## Audit Procedures

### Occurrence, Completeness & Measurement of FD Interest

Obtain listing of FDs opened during the period with interest rate and number of days outstanding.
Verify arithmetical accuracy of interest calculation by re-computing: Principal × Rate × Days/365.
For deposits still outstanding at period-end, trace to direct confirmations received from banks.
Obtain confirmation of interest income from the bank.
Obtain Form 26AS and reconcile interest reflected therein with the books.

### Why Form 26AS Reconciliation?

Form 26AS shows TDS deducted by banks on interest. Differences indicate:

Unrecorded interest income, OR
Timing differences between accrual and TDS deduction.

## Disclosure

'Other Income' must be classified as:

Interest income (in case of an entity other than a finance company)
Dividend income
Net gain/loss on sale of investments
Other non-operating income (net of expenses directly attributable to such income)

Worked example

### Example 1

Example — FD interest recomputation: A 1-year FD of Rs 10 lakh at 7% was opened on 1 October. At 31 March (year-end), interest accrual = 10,00,000 × 7% × 182/365 = Rs 34,904. The auditor recomputes, traces to bank confirmation, and ties to Form 26AS (which may show full-year TDS at maturity).

### Example 2

Example — Dividend timing: ABC Ltd holds shares in XYZ Ltd. XYZ declares a dividend on 28 March; record date is 5 April. The auditor verifies that ABC has NOT recognised dividend income in the current year — the right to receive was established only on the record date (5 April).

### Example 3

Example — Form 26AS mismatch: Books show Rs 1,20,000 of FD interest. Form 26AS shows Rs 1,50,000. The auditor investigates the Rs 30,000 gap, finds a Rs 30,000 interest credit on a forgotten FD in a co-op bank, and proposes an adjustment to add Rs 30,000 to interest income.

⚠️ Common exam mistakes

Recognising dividend on declaration date when shares are not held on record date.
Not reconciling interest income with Form 26AS — missing unrecorded interest.
Computing gain on mutual fund redemption using NAV at redemption date instead of carrying value of units sold.
Clubbing all 'other income' under one line instead of the mandated four-way classification.
Not netting expenses directly attributable to non-operating income.

Bare-Act text AS 9 / Ind AS 115 · AS 9 / Ind AS 115 — Revenue Recognition · click to expand

Interest shall be recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. Dividends from investments in shares shall be recognised in the statement of profit and loss when the owner's right to receive payment is established.

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Audit of Other Income — Interest, Dividend, Investment Gains

Worked example

⚠️ Common exam mistakes