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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 Technology
Technology companies have a unique PP&E profile characterised by short useful lives, rapid obsolescence, and the critical distinction between hardware (IAS 16) and software (IAS 38). Most technology company PP&E consists of servers, data centre infrastructure, network equipment, and employee workstations. The total PP&E balance may be modest for pure SaaS companies but significant for companies operating their own data centres — cloud providers, hosting companies, and enterprises with on-premises infrastructure.
The IAS 16 vs IAS 38 boundary is the most important classification question for technology companies. Hardware (servers, networking equipment, workstations) is PP&E under IAS 16. Software (applications, platforms, development tools) is an intangible asset under IAS 38 (if capitalised) or an expense (if not meeting capitalisation criteria). The critical borderline case is embedded software — software that is integral to the hardware's functioning (e.g., server firmware, router operating systems). Under IAS 38.4, embedded software that forms an integral part of the related hardware is treated as PP&E, not as a separate intangible.
Data centres deserve special attention for technology companies. A data centre is not a single asset — it comprises the building shell (20–30 years), cooling systems (10–15 years), power distribution including UPS and generators (15–20 years), server racks and cabling infrastructure (5–10 years), and the servers themselves (3–5 years). Applying IAS 16.43 component depreciation to data centres ensures that the depreciation charge reflects the actual replacement cycle of each component. Companies operating multiple data centres should establish consistent policies across locations.
Typical Asset Classes — Technology
| Asset | Useful Life | Method | Notes |
|---|---|---|---|
| Servers | 3–5 years | Straight-line | Rapid obsolescence; consider data centre component approach |
| Network equipment | 3–5 years | Straight-line | Routers, switches, firewalls |
| Data centre infrastructure | 10–20 years | Straight-line with components | Building vs cooling vs power vs racks — each different life |
| Employee workstations | 3–4 years | Straight-line | Laptops and monitors; low residual value |
| R&D equipment | 3–7 years | Straight-line | May qualify for IAS 38 if used exclusively for development activities |
Key IAS 16 Considerations — Technology
IAS 16 (hardware) vs IAS 38 (software) distinction is critical
Embedded software integral to hardware is classified as PP&E (IAS 38.4)
Data centres require component depreciation (IAS 16.43)
Short useful lives (3–5 years) mean rapid asset turnover
Minimal residual values due to technological obsolescence
Worked Example: Server Infrastructure Refresh
A technology company refreshes its server infrastructure in May 2025. Total cost: €80,000 for 10 servers. Estimated residual value is €2,000, useful life is 4 years. Straight-line depreciation with a December year-end.
Cost: €80,000
Residual value: €2,000
Depreciable amount: €78,000
Annual depreciation: €19,500 (straight-line)
First year depreciation: €13,000 (pro-rata: 8 months — May to December)
Audit Considerations
Technology company auditors should verify the IAS 16 vs IAS 38 classification for all significant IT assets. Capitalisation thresholds for hardware purchases should be tested. For companies with material data centre assets, component depreciation compliance under IAS 16.43 should be assessed.