ABC Ltd. has several fixed deposits with different banks. During audit for the year 2024-25, the auditor notices that the interest income shown in…

Audit procedure for verifying interest income on fixed deposits: (i) Obtain a listing of fixed deposits opened during the period under audit along with the applicable interest rate and the number of days for which the deposit was outstanding during the period. (ii) Verify the arithmetical accuracy of the interest calculation made by the entity by recomputing i.e. multiplying the deposit amount with the applicable rate and number of days during the period under audit. (iii) For deposits still outstanding as at the period- end, trace the same to the direct confirmations obtained from the respective bank/ financial institution. (iv) Obtain a confirmation of interest income from the bank and verify that the interest income as per bank reconciles with the calculation shared by the entity. (v) Also, obtain a copy of Form 26AS (TDS withholding by the bank/financial institution) and reconcile the interest reflected therein with the calculation shared by client.