The IFRS Interpretations Committee has published a tentative agenda decision on how entities estimate the residual value of property, plant and equipment under IAS 16. The matter remains open for comment until 30 November 2026, so it does not yet change the Standard. However, it gives finance teams a timely reason to review whether their existing asset estimates are supported by current evidence.

The issue is particularly relevant to businesses with significant fleets, machinery, production equipment or other assets that are sold before the end of their economic lives. The Committee’s fact pattern involved vehicles leased to customers and sold at the end of the lease term, but the underlying estimation principles may also be relevant to other asset classes.

What the IFRS discussion covers

IAS 16 defines residual value as the amount an entity would currently obtain from disposing of an asset, after disposal costs, if the asset were already at the age and condition expected at the end of its useful life. The Committee’s analysis distinguishes between developments that affect current prices and developments that would affect only future prices.

For example, expected technological changes that already influence current market prices may be relevant when estimating residual value. By contrast, general inflation expected to occur between the reporting date and the end of the asset’s useful life would affect a future selling price rather than the amount the entity could currently obtain. The IFRS Interpretations Committee’s September 2026 update explains the fact pattern and the Committee’s reasoning.

Why this matters for South African businesses

Residual value directly affects the depreciable amount of an asset. If the estimate is too high, depreciation may be understated. If it is too low, depreciation may be overstated. Either outcome can distort operating results, asset carrying amounts, management accounts and performance indicators.

IAS 16 requires the residual value and useful life of an asset to be reviewed at least at each financial year-end. Where expectations change, the effect is generally accounted for prospectively as a change in an accounting estimate. The IAS 16 text published by the IFRS Foundation also makes clear that depreciation continues unless specific requirements result in a different treatment.

What businesses should check

  • Identify asset classes where residual values are material to depreciation, covenant calculations or reported profitability.
  • Compare previous estimates with recent disposal proceeds, trade-in values, auction results and independent market evidence.
  • Assess whether technological obsolescence, regulatory changes or changes in customer demand are already affecting current market prices.
  • Review estimated disposal costs, including transport, refurbishment, broker fees and other directly associated costs.
  • Document the evidence supporting the estimate, including the reporting date, asset condition and expected end-of-use condition.
  • Ensure any revision is processed prospectively and is reflected consistently in the fixed-asset register and financial statements.

Practical next steps

Finance teams do not need to wait for the tentative agenda decision to become final before improving their controls. A focused year-end review of high-value assets can identify outdated assumptions and reduce the risk of unexplained depreciation movements.

Management should also distinguish between a change in an estimate and an error in an earlier financial statement. That assessment may require technical accounting input, particularly where the effect is material or where assets are subject to audit scrutiny.

The Committee’s discussion is still at the tentative stage. Businesses should monitor the final outcome and consider whether the proposed interpretation affects their existing documentation. YFP can assist businesses with fixed-asset reviews, accounting estimates and financial reporting processes. Explore the YFP accounting and advisory services.