Asset Details
€150.000
€8.000
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 Insurance
Insurance companies share many PP&E characteristics with banking: relatively modest fixed asset balances dominated by IT infrastructure, office premises, and standard equipment. However, the insurance sector has unique considerations driven by the implementation of IFRS 17 Insurance Contracts and the Solvency II regulatory framework. Depreciation policy, while not the most material area of an insurer's financial statements, interacts with both the IFRS 17 expense attribution model and the Solvency II balance sheet.
Under IFRS 17, certain costs — including depreciation on assets used directly in fulfilling insurance contracts — may be attributed to insurance contract fulfilment cash flows if they relate directly to the fulfilment of the portfolio of contracts. This means depreciation on claims processing equipment, policy administration systems, and other assets directly used in contract fulfilment may affect the contractual service margin (CSM) under the general measurement model, rather than being recognised immediately in profit or loss. Insurers need to carefully identify which PP&E items relate to contract fulfilment versus general overhead.
The Solvency II regulatory framework uses a market-consistent balance sheet where assets are typically measured at fair value. PP&E on the Solvency II balance sheet may differ from the IAS 16 carrying amount (cost less accumulated depreciation) if fair value differs. However, for most insurance company PP&E (IT equipment, office furniture), the cost model under IAS 16 is a reasonable proxy for fair value given the short useful lives involved. The depreciation charge itself does not directly affect the solvency capital requirement (SCR) but affects own funds through retained earnings.
Typical Asset Classes — Insurance
| Asset | Useful Life | Method | Notes |
|---|---|---|---|
| IT systems (policy administration) | 5–8 years | Straight-line | Core insurance platforms; legacy system migrations common |
| Office premises fit-out | 7–12 years | Straight-line | Leasehold improvements aligned to IFRS 16 lease term |
| Call centre equipment | 3–5 years | Straight-line | Telephony, headsets, workstations |
| Office furniture | 5–10 years | Straight-line | Standard depreciation applies |
| Vehicle fleet (claims assessors) | 3–5 years | Reducing balance | Higher early depreciation reflects market value decline |
Key IAS 16 Considerations — Insurance
IFRS 17 may require allocation of depreciation to insurance contract fulfilment cash flows
Solvency II balance sheet may use different valuation basis than IAS 16
Digital transformation creating impairment indicators for legacy systems and branches
Claims assessor vehicle fleets may suit reducing balance method
Similar PP&E profile to banking — IT infrastructure and office premises dominate
Worked Example: Policy Administration System Hardware
An insurance company installs new policy administration system hardware in August 2025 for €150,000. Estimated residual value is €8,000, useful life is 5 years. Straight-line depreciation with a December year-end.
Cost: €150,000
Residual value: €8,000
Depreciable amount: €142,000
Annual depreciation: €28,400 (straight-line)
First year depreciation: €11,833 (pro-rata: 5 months — August to December)
Audit Considerations
Insurance company auditors should consider the IFRS 17 allocation of depreciation between fulfilment cash flows and P&L expenses. Solvency II balance sheet reconciliation with IFRS should include any PP&E valuation differences. EIOPA guidelines on Solvency II valuation apply.