IAS 38 – Intangible Assets: Recognition, Measurement, and Disclosure
A comprehensive guide to IAS 38, the international accounting standard that prescribes the accounting treatment for intangible assets not dealt with specifically in other standards.
IAS 38 Intangible Assets
Jarred Wakefield
Managing Director, New York
Jarred specializes in financial reporting and valuation advisory services. With deep expertise in international accounting standards, he helps organizations properly recognize and measure intangible assets in compliance with IFRS requirements.
IAS 38 Intangible Assets outlines the accounting requirements for intangible assets, which are non-monetary assets without physical substance. The standard requires an entity to recognize an intangible asset if, and only if, certain criteria are met.
What Is an Intangible Asset?
An intangible asset is an identifiable non-monetary asset without physical substance. An asset is identifiable if it either:
- Is separable (capable of being separated from the entity and sold, transferred, licensed, rented, or exchanged)
- Arises from contractual or other legal rights
Examples of intangible assets include:
- Patents and copyrights
- Computer software
- Licenses and franchises
- Trademarks and trade names
- Customer lists and relationships
- Marketing rights
Recognition Criteria
An intangible asset shall be recognized if, and only if:
- It is probable that the expected future economic benefits attributable to the asset will flow to the entity
- The cost of the asset can be measured reliably
Separately Acquired Intangible Assets
When an intangible asset is acquired separately, the cost comprises:
- Its purchase price, including import duties and non-refundable purchase taxes
- Any directly attributable cost of preparing the asset for its intended use
Internally Generated Intangible Assets
IAS 38 requires that internally generated intangible assets be classified into two phases:
Research Phase
No intangible asset arising from research shall be recognized. Expenditure on research shall be recognized as an expense when it is incurred. Examples include activities aimed at obtaining new knowledge and the search for alternatives for materials, devices, products, processes, systems, or services.
Development Phase
An intangible asset arising from development shall be recognized if, and only if, an entity can demonstrate all of the following:
- Technical feasibility of completing the intangible asset
- Intention to complete the intangible asset and use or sell it
- Ability to use or sell the intangible asset
- How the intangible asset will generate probable future economic benefits
- Availability of adequate resources to complete the development
- Ability to measure reliably the expenditure attributable to the intangible asset
Measurement After Recognition
An entity shall choose either the cost model or the revaluation model as its accounting policy:
Cost Model
After initial recognition, an intangible asset shall be carried at its cost less any accumulated amortization and any accumulated impairment losses.
Revaluation Model
After initial recognition, an intangible asset shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated amortization and any subsequent accumulated impairment losses. This model can only be used if fair value can be determined by reference to an active market.
Useful Life and Amortization
An entity shall assess whether the useful life of an intangible asset is finite or indefinite:
Finite Useful Life
The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life. Amortization shall begin when the asset is available for use.
Indefinite Useful Life
An intangible asset with an indefinite useful life shall not be amortized. Instead, it shall be tested for impairment annually and whenever there is an indication that the asset may be impaired.
Items Not Recognized as Intangible Assets
The following items cannot be recognized as intangible assets under IAS 38:
- Internally generated goodwill
- Internally generated brands, mastheads, publishing titles, customer lists
- Start-up costs
- Training costs
- Advertising and promotional costs
- Relocation or reorganization costs
Disclosure Requirements
An entity shall disclose the following for each class of intangible assets:
- Whether useful lives are indefinite or finite
- Amortization methods and rates used
- Gross carrying amount and accumulated amortization
- Reconciliation of carrying amount at beginning and end of period
- Aggregate amount of research and development expenditure recognized as expense
How CPCON Can Help
CPCON provides expert guidance on intangible asset identification, valuation, and accounting. Our team helps organizations ensure compliance with IAS 38 requirements while maximizing the value of their intangible assets through proper recognition and measurement.