Asset Details
€200.000
€10.000
IAS 16 Depreciation Audit Working Paper Template — free PDF
Practical audit guide covering all four depreciation methods with worked examples, component depreciation checklist, change-in-estimate documentation template, and useful life benchmarks by asset class.
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IAS 16 Depreciation for Banking
Banking and financial institutions have relatively modest PP&E balances compared to their total assets, but the depreciation policy for these assets can have a disproportionate impact on cost-to-income ratios — a key performance metric for the financial services industry. The primary PP&E categories in banking are IT infrastructure (servers, data centres, networking equipment), ATM networks, branch premises and fit-outs, and office equipment. Unlike manufacturing or real estate, PP&E typically represents less than 2% of a bank's total assets.
The most significant IAS 16 consideration for banking is the interaction between technology depreciation and the bank's digital transformation strategy. As banks shift from branch-based to digital-first models, the useful life assessments for branch-related assets (fit-outs, ATM networks) must be reviewed against the entity's strategic plan. An ATM network that was expected to operate for 8 years may have its useful life shortened if the bank plans to reduce its physical footprint. These are prospective changes in estimates under IAS 8, applied from the date of reassessment.
Regulatory capital is another banking-specific dimension. Under Basel III/IV, depreciation charges directly reduce Tier 1 capital through retained earnings. The choice of depreciation method and useful life therefore has a direct impact on regulatory capital ratios — CET1, Tier 1, and total capital ratios. While this should not drive the accounting policy (IAS 16 requires the method to reflect consumption of economic benefits), auditors and management should be aware of the capital impact when assessing the reasonableness of depreciation estimates.
Typical Asset Classes — Banking
| Asset | Useful Life | Method | Notes |
|---|---|---|---|
| IT infrastructure (servers, networking) | 3–5 years | Straight-line | Rapid technology cycles; data centres may require component approach |
| ATM networks | 5–8 years | Straight-line | Declining usage trends may affect useful life assessments |
| Branch fit-outs | 7–12 years | Straight-line | Leasehold improvements; align with IFRS 16 lease term |
| Security systems | 5–8 years | Straight-line | Vault doors, surveillance, access control |
| Office furniture | 5–10 years | Straight-line | Standard office equipment across branch network |
Key IAS 16 Considerations — Banking
PP&E is a small proportion of total bank assets but affects cost-to-income ratio
Depreciation directly impacts regulatory capital (CET1 through retained earnings)
Digital transformation may require useful life reassessment for branch/ATM assets
Data centres require component depreciation (IAS 16.43)
Software is IAS 38 (intangible), not IAS 16 (PP&E) — important distinction
Worked Example: Core Banking IT Infrastructure
A bank upgrades its core banking infrastructure in June 2025 for €200,000 (servers and networking equipment). Estimated residual value is €10,000, useful life is 5 years. Straight-line depreciation with a December year-end.
Cost: €200,000
Residual value: €10,000
Depreciable amount: €190,000
Annual depreciation: €38,000 (straight-line)
First year depreciation: €22,167 (pro-rata: 7 months — June to December)
Audit Considerations
Bank auditors should consider the interaction between depreciation estimates and regulatory capital reporting (Basel III/IV). ECB SSM expectations require consistent useful life estimates across the group. The cost-to-income ratio sensitivity to depreciation method should be assessed as part of analytical procedures.