How to Audit Non-current Assets Held for Sale Under IFRS 5

The six classification criteria you’re testing

IFRS 5.7 and IFRS 5.8 set out the conditions for held-for-sale classification. All of them must be met. Your audit work on classification is a yes/no evaluation of each condition, supported by evidence. If one fails, the asset stays in its original classification and continues to be depreciated.

IFRS 5.7 requires that the asset must be available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such assets. “Available for immediate sale” means the asset can be sold right now without significant modification. A building that requires environmental remediation before it can legally transfer does not qualify. Neither does a factory still in active production while a replacement facility is built.

IFRS 5.8 adds five conditions that must all be met for the sale to be “highly probable.” The management body with appropriate authority must be committed to a plan to sell. An active programme to locate a buyer must have begun. The asset must be actively marketed at a price that is reasonable in relation to its current fair value. The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. And actions required to complete the plan should indicate that it is unlikely the plan will be significantly changed or withdrawn. All five conditions are cumulative. Missing one means the classification fails.

In practice, the condition that fails most often is the one-year completion requirement. Clients reclassify assets to held for sale when the board approves a disposal strategy, but the actual sale process takes 18 months. IFRS 5.9 provides a narrow exception for events beyond the client’s control (a regulator imposes conditions, an unexpected competing bid triggers a longer process), but the exception requires continued commitment to the sale and active marketing of the asset. It does not cover delays caused by setting an unrealistic asking price or failing to engage a broker.

Your working paper should contain a line-by-line assessment of each criterion, with a reference to the supporting evidence for each. Commitment to sell requires board minutes or a management decision document. Evidence of broker engagement, listing documentation, or direct outreach to potential buyers supports the active marketing programme criterion. The price reasonableness test needs a comparison of the asking price to an independent valuation or recent comparable transactions, and the one-year expectation needs a timeline with milestones.

The IAS 16 Depreciation Calculator can help you model the depreciation that would have been charged had the asset not been reclassified, which you’ll need if the classification is reversed.

Measurement at reclassification: the impairment calculation

Once classification is confirmed, IFRS 5.15 requires measurement at the lower of carrying amount and fair value less costs to sell. This comparison happens at the reclassification date and again at each subsequent reporting date until the asset is sold or the classification is reversed.

The carrying amount is straightforward: it’s the amount at which the asset was carried under its previous standard (IAS 16, IAS 38, IAS 40, or another applicable IFRS) immediately before reclassification. IFRS 5.18 requires measurement under the applicable IFRS immediately before classifying the asset as held for sale. In practice, this means you need to ensure depreciation was calculated up to the reclassification date, not just up to the last reporting date. If the client reclassified in October but last calculated depreciation at 30 June, the carrying amount needs updating before the held-for-sale measurement.

Fair value less costs to sell is the trickier component. IFRS 13 applies for the fair value measurement. Costs to sell include incremental costs directly attributable to the disposal (broker fees, legal fees, stamp duty, transfer taxes) but exclude finance costs and income tax expense per IFRS 5’s appendix definition.

When fair value less costs to sell falls below carrying amount, IFRS 5.20 requires recognition of an impairment loss. No gain is recognised at reclassification if fair value less costs to sell exceeds carrying amount; the gain waits until the sale completes. At subsequent reporting dates, IFRS 5.21 permits reversal of impairment losses, but only up to the cumulative impairment loss recognised under IFRS 5 and IAS 36 combined. This ceiling prevents the client from writing the asset back up above its pre-reclassification carrying amount through a series of reversals.

Your audit procedures should include: obtaining the client’s fair value estimate and evaluating the methodology (market approach using comparable transactions, or an independent valuation), testing the costs-to-sell estimate against actual broker agreements or market data, recalculating the impairment loss, and verifying that depreciation ceased from the reclassification date (IFRS 5.25) and not from the board decision date, which is an error that appears regularly on mid-market files.

Disposal groups: when it’s more than one asset

IFRS 5.4 defines a disposal group as a group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. When a client sells a business unit, a subsidiary, or an operating segment, you’re almost always dealing with a disposal group rather than a single asset.

The classification criteria in IFRS 5.7 and IFRS 5.8 apply to the disposal group as a whole. The measurement under IFRS 5.15 also applies at the group level, but with a specific allocation order. IFRS 5.23 requires the impairment loss to be allocated first to goodwill within the disposal group, then to the remaining assets on a pro-rata basis in accordance with IAS 36. Assets not within the scope of IFRS 5’s measurement requirements (inventories, financial assets, deferred tax assets, investment property measured at fair value, biological assets measured at fair value less costs to sell) are measured under their own standards first, before the IFRS 5 measurement is applied to the disposal group as a whole.

This sequencing catches auditors out. If a disposal group contains inventory measured under IAS 2 at €1.2M, a deferred tax asset of €0.4M, and PP&E of €3.8M, you first measure the inventory and deferred tax under their own standards. Then you apply the IFRS 5 measurement (lower of carrying amount and fair value less costs to sell) to the disposal group, but the resulting impairment loss is allocated only to the assets within IFRS 5’s measurement scope. The PP&E absorbs the loss. The inventory and deferred tax asset do not.

Your file needs a schedule that separates the disposal group into IFRS 5 scope assets and non-IFRS 5 scope assets, shows the measurement of each category, and demonstrates the allocation of any impairment loss.

Discontinued operations: the presentation test most files fail

IFRS 5.32 defines a discontinued operation as a component of an entity that either has been disposed of or is classified as held for sale, and represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of a separate major line of business or geographical area, or is a subsidiary acquired exclusively with a view to resale. Meeting the discontinued operation criteria triggers a set of financial statement presentation requirements that go well beyond the held-for-sale balance sheet reclassification.

IFRS 5.33 requires a single amount on the face of the income statement comprising the total of the post-tax profit or loss of the discontinued operation and the post-tax gain or loss on measurement to fair value less costs to sell (or on disposal). This single-line presentation must include all revenue, expenses, pre-tax profit or loss, and related income tax expense of the discontinued operation. The detail sits in the notes or on the face of the income statement, but the single-amount presentation on the face is mandatory.

IFRS 5.34 requires presentation of the net cash flows attributable to the discontinued operation, broken down into operating, investing, and financing activities. This can be on the face of the cash flow statement or in the notes.

IFRS 5.33 also requires restatement of prior period comparative information in the income statement and cash flow statement. The comparatives must be restated as if the operation had been discontinued from the start of the comparative period. This is the requirement that mid-market files most frequently miss. The balance sheet comparatives are not restated (IFRS 5.40), but the income statement and cash flow comparatives are.

Your audit procedures should verify that the client has correctly identified whether the disposed or held-for-sale component meets the discontinued operation definition, that the income statement presents the single-amount line, that the cash flow statement or notes present the disaggregated cash flows, and that the prior period comparatives have been restated.

Worked example: Dekker Metaal B.V. sells its stamping division

Scenario: Dekker Metaal B.V. (revenue €45M) decided on 15 October 2025 to sell its stamping division, which operates from a dedicated facility in Tilburg. The division generated €11M revenue in 2024 and employs 42 staff. On 20 October 2025, Dekker engaged a business broker and listed the division at €7.5M. The division’s assets at 15 October 2025 comprise: PP&E €4.8M, inventory €1.6M, trade receivables €1.1M, and goodwill allocated to the stamping CGU of €0.8M. Directly associated liabilities (trade payables, employee provisions) total €1.9M. Net assets of the disposal group: €6.4M. Expected selling price: €7.5M. Estimated costs to sell (broker fee, legal): €0.35M.

Step 1: Test the classification criteria at 15 October 2025

Available for immediate sale: the stamping division operates independently from a dedicated facility. No modifications are required. Criterion met.

Committed to a plan: board minutes dated 15 October 2025 record the decision. Criterion met.

Active programme to locate a buyer: broker engaged 20 October 2025, listing live by 25 October. Criterion met.

Price reasonable relative to fair value: the listing price of €7.5M compares to an independent desktop valuation of €7.0M to €7.8M obtained by the engagement team. Criterion met.

Expected to complete within one year: the broker’s engagement letter estimates six to nine months. No regulatory approvals required. Criterion met.

Unlikely to be withdrawn: the board resolution contains no conditions. No competing internal proposals to retain the division exist. Criterion met.

Step 2: Measure the disposal group under IFRS 5.15

Carrying amount of disposal group net assets: €6.4M. Fair value less costs to sell: €7.5M minus €0.35M = €7.15M. Fair value less costs to sell exceeds carrying amount. No impairment loss at reclassification date.

Step 3: Assess whether this qualifies as a discontinued operation

The stamping division generated €11M of Dekker’s €45M revenue (24%). It operates from a separate facility, has its own customer base, and its own employees. Under IFRS 5.32, a discontinued operation must represent a separate major line of business or geographical area. The stamping division is one of Dekker’s two operating segments (the other being precision machining at €34M revenue). Representing a separate major line of business, it meets the definition.

Step 4: Verify the presentation requirements

The income statement must show a single line for the discontinued operation’s post-tax result. Comparative information for 2024 must be restated to show the stamping division separately. Cash flows attributable to the division (operating, investing, financing) need to appear on the face of the cash flow statement or in the notes.

Conclusion: The file demonstrates classification based on all six criteria, measurement confirming no impairment loss, the discontinued operation assessment, and the presentation requirements. A reviewer sees the evidence trail from board decision through to financial statement disclosure.

What happens when the sale falls through

IFRS 5.26 through IFRS 5.29 govern the accounting when an asset (or disposal group) ceases to be classified as held for sale. The asset is reclassified back and measured at the lower of its carrying amount before the held-for-sale classification (adjusted for any depreciation, amortisation, or revaluations that would have been recognised had the asset not been classified as held for sale) and its recoverable amount at the date of the decision not to sell.

The depreciation catch-up is where the complexity sits. If a building with a carrying amount of €4.0M was classified as held for sale on 1 April 2025 and reclassified back on 1 December 2025, you need to calculate the depreciation that would have been charged for April through November (eight months) and reduce the carrying amount accordingly. IFRS 5.27 requires this adjusted carrying amount to be used for the comparison against recoverable amount.

For disposal groups, IFRS 5.28 requires the reversal to apply to only those assets within the scope of IFRS 5’s measurement requirements. Non-current assets within the disposal group that are outside IFRS 5’s measurement scope (financial assets, investment property at fair value) were never remeasured under IFRS 5 in the first place.

The reversal adjustment is recognised in income from continuing operations in the period in which the criteria are no longer met. The prior period is not restated.

Your file should document the date the criteria ceased to be met, the calculation of hypothetical depreciation, the recoverable amount assessment under IAS 36, and the resulting adjustment.

Year-end timing issues: the 31 December classification trap

A specific practical problem affects clients with 31 December year-ends. In mid-December, the board approves a disposal plan. A broker is engaged in early January. The client classifies the asset as held for sale at 31 December on the basis that the board committed to the plan before year-end. This scenario appears on mid-market files every busy season.

This fails the IFRS 5.8 criteria. At 31 December, no active programme to locate a buyer had begun, no marketing had commenced, and no price had been set. The board commitment alone is insufficient.

IFRS 5 does not provide a grace period. If the classification criteria are met in January, the reclassification occurs in January. The 31 December balance sheet continues to present the asset in its original classification with full depreciation. The January reclassification is a non-adjusting event under IAS 10.22 that requires disclosure in the notes if material. Your file should specifically address year-end timing when a disposal occurs near the reporting date. Obtain a timeline of events and map each IFRS 5.8 criterion to the date it was met. If any criterion was met after the reporting date, the classification does not apply to the year-end financial statements.

Practical checklist for your next IFRS 5 file

1. When you learn of a planned disposal, prepare a six-line schedule mapping each IFRS 5.7 and IFRS 5.8 criterion to the date it was met and the supporting evidence. If any criterion was met after the reporting date, held-for-sale classification does not apply to this year’s financial statements.
2. Verify depreciation was calculated up to the reclassification date (not the last reporting date, not the board decision date). Confirm depreciation ceased from the reclassification date per IFRS 5.25.
3. Obtain the fair value estimate and costs-to-sell calculation. Test both against independent evidence. Recalculate the impairment loss (or confirm no loss is required). Document the measurement under IFRS 5.15.
4. For disposal groups, prepare a schedule separating assets within IFRS 5’s measurement scope from those outside it (inventories, financial assets, deferred tax, investment property at fair value). Apply the sequenced measurement and impairment allocation per IFRS 5.23.
5. Assess whether the held-for-sale component meets the discontinued operation definition under IFRS 5.32. If it does, verify the income statement single-line presentation, the cash flow disclosure, and the prior period comparative restatement. The balance sheet comparatives are not restated.

Common mistakes

• Classifying an asset as held for sale based on board approval alone, without meeting all IFRS 5.8 conditions (active marketing, reasonable price, one-year expectation). The AFM has flagged premature held-for-sale classification in thematic reviews on asset measurement, particularly for entities with December year-ends where the marketing programme begins in January.
• Ceasing depreciation from the board decision date rather than the reclassification date. IFRS 5.25 stops depreciation from the date the asset is classified as held for sale, which is the date all IFRS 5.7 and IFRS 5.8 criteria are met. For assets where the criteria are met on different dates, the latest date governs.
• Failing to restate prior period income statement and cash flow comparatives when a held-for-sale component qualifies as a discontinued operation. IFRS 5.34 and IFRS 5.33 require restatement of the comparatives, but IFRS 5.40 explicitly does not require restatement of the balance sheet comparatives. Files that restate neither or restate both are both wrong.

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Further reading and source references

• IFRS 5, Non-current Assets Held for Sale and Discontinued Operations: the source standard covering classification, measurement, and presentation requirements.
• IAS 36, Impairment of Assets: applies to the impairment allocation in disposal groups and the recoverable amount assessment when held-for-sale classification is reversed.
• IAS 10, Events After the Reporting Period: relevant to year-end timing issues when classification criteria are met after the reporting date.
• IFRS 13, Fair Value Measurement: applies to the fair value component of the IFRS 5.15 measurement.