IAS 38 vs FRS 102 Section 18: Compared
IAS 38 vs FRS 102 Section 18 for intangible assets. How full IFRS and UK GAAP differ on recognition, development capitalisation, revaluation, amortisati...
UK companies face a practical choice between two intangible asset frameworks: IAS 38 (mandatory for UK-listed groups) and FRS 102 Section 18 (the default for UK private companies). While both draw from similar principles, they diverge in important ways — particularly around development cost capitalisation, revaluation, goodwill treatment, and disclosure requirements. For companies considering a future listing, PE exit, or transition to IFRS, understanding these differences is essential for planning and for interpreting reported intangible asset values across peer companies using different standards.
| Criteria | IAS 38 (IFRS) | FRS 102 Section 18 (UK GAAP) |
|---|---|---|
| Applicability | UK-listed groups (mandatory); others by choice | UK private companies, LLPs, charities not applying IFRS |
| Development cost capitalisation | Required if all 6 IAS 38.57 criteria are met | Choice — may capitalise if criteria met, or may adopt policy of expensing all |
| Revaluation model | Permitted if an active market exists for the intangible (very rare in practice) | Not permitted — cost model only |
| Goodwill amortisation | Not amortised under IFRS 3 — tested annually for impairment | Amortised over useful life; if not reliably estimable, max 10 years |
| Useful life assessment | Finite or indefinite — indefinite means no foreseeable limit on cash generation | Finite or indefinite — same concept but goodwill is always finite |
| Disclosure requirements | Extensive — IAS 38.118-128 requires detailed class-by-class disclosures | Simplified — proportionate to entity size and complexity |
| Impairment reversal | Permitted for intangible assets (but not goodwill) | Permitted for intangible assets and goodwill |
When to Use Each Approach
IAS 38 (IFRS)
- UK-listed companies (mandatory for group accounts)
- Companies preparing for IPO or cross-border listing
- Entities seeking maximum international comparability
- Groups with international subsidiaries already reporting under IFRS
FRS 102 Section 18 (UK GAAP)
- UK private companies not required to adopt IFRS
- Owner-managed businesses preferring simpler reporting
- Companies where goodwill amortisation is preferred (predictable charge, reduces carrying value)
- Entities where the additional disclosure burden of IAS 38 is disproportionate
Our Verdict
FRS 102 Section 18 offers simplicity and the option to amortise goodwill — which many PE-backed companies prefer for its predictable earnings impact. IAS 38 provides more detailed intangible asset information and international comparability. UK companies approaching a listing or cross-border transaction should model the impact of transitioning from FRS 102 to IFRS on their intangible asset balances, particularly the shift from goodwill amortisation to impairment-only.
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