IFRS 3 vs IFRS 13 vs IAS 38
IFRS 3 vs IFRS 13 vs IAS 38 — what each standard covers, where the boundaries lie, and how the three interact through an intangible's lifecycle.
Introduction
Three IFRS standards govern the lifecycle of an intangible asset: IFRS 3 (Business Combinations) tells you when and how to recognise it on acquisition; IFRS 13 (Fair Value Measurement) tells you what fair value means and how to measure it; IAS 38 (Intangible Assets) tells you how to account for it once on the balance sheet — initial recognition, subsequent measurement, amortisation, and disposal.
They are distinct standards with distinct scopes, but in practice they interact through the same intangible asset. A customer relationship recognised under IFRS 3 is measured under IFRS 13, then amortised and tested for impairment under IAS 38. An internally generated brand cannot be recognised under IAS 38, but the same brand acquired as part of a business combination would be recognised under IFRS 3 — and measured under IFRS 13.
This comparison walks through the scope of each standard, where the boundaries lie, and how the three interact on a single asset. The intended reader is a CFO, technical accountant, or PE/M&A practitioner working through purchase price allocation, fair-value disclosures, or impairment testing under IFRS.
TL;DR: IFRS 3 tells you which intangibles to recognise when a business is acquired and the rules for separating them from goodwill. IFRS 13 defines fair value and the three-level fair value hierarchy used for measurement. IAS 38 governs the asset after recognition — useful life, amortisation, revaluation, and the conditions under which internally generated intangibles can be recognised at all. They are sequential, not parallel.
IFRS 3 — Business Combinations
IFRS 3 (Business Combinations) governs how acquirers recognise and measure the assets and liabilities of an acquired business at the acquisition date. For intangible assets specifically, IFRS 3 sets the recognition criteria, the measurement basis, and the separation principle that distinguishes identifiable intangibles from goodwill.
What IFRS 3 covers
- Recognition — every identifiable intangible asset acquired in a business combination is recognised separately from goodwill (paragraph 18)
- Identifiability — an intangible is identifiable if it is either separable (capable of being sold separately) or arises from contractual or legal rights (paragraph 11)
- Measurement — acquired intangibles are measured at fair value at the acquisition date (paragraph 18 + IFRS 13)
- Goodwill — the residual after recognising all identifiable intangibles, tangible assets, and liabilities (paragraph 32)
When IFRS 3 applies
IFRS 3 applies only on the acquisition of a business, not to internally generated intangibles, not to asset acquisitions that do not meet the business combination definition, and not after the acquisition date (post-acquisition accounting moves to IAS 38).
A UK acquirer purchases a SaaS business for £80m. Under IFRS 3, the acquirer identifies and recognises customer relationships (£22m), developed technology (£14m), the trade name (£6m), and a non-compete agreement (£2m). The remaining £36m — net of acquired working capital and other net assets — is recognised as goodwill. Each identified intangible is then measured at fair value per IFRS 13.
Common pitfalls in IFRS 3
- Failing to identify intangibles that meet the contractual-or-separability test (e.g., assembled workforce is not identifiable; customer relationships are)
- Bundling intangibles into goodwill to avoid post-acquisition amortisation
- Inconsistent useful-life assumptions between the IFRS 3 acquisition-date PPA and the IAS 38 amortisation period
IFRS 13 — Fair Value Measurement
IFRS 13 (Fair Value Measurement) defines fair value and prescribes a single framework for measuring it across all IFRS standards that require fair value measurement. It does not tell you when to measure fair value — IFRS 3, IAS 36, IAS 38, IAS 40, and others tell you that — it tells you how.
What IFRS 13 covers
- Definition of fair value — the price that would be received to sell an asset (or paid to transfer a liability) in an orderly transaction between market participants at the measurement date (paragraph 9)
- Market participant assumptions — fair value is not the entity's specific value; it is the price a hypothetical market participant would pay or receive
- Fair value hierarchy — three levels based on observability of inputs:
- Level 1: quoted prices in active markets for identical assets
- Level 2: observable inputs other than Level 1 quoted prices (e.g., royalty-rate comparables)
- Level 3: unobservable inputs (e.g., entity-specific cash flow projections)
- Valuation techniques — market approach, income approach, cost approach (paragraph 62), used singly or in combination
- Disclosure — extensive disclosure for Level 2 and Level 3 fair values
When IFRS 13 applies
IFRS 13 applies whenever another standard requires or permits a fair value measurement. For intangibles, that is principally IFRS 3 (acquisition date), IAS 36 (impairment testing using fair-value-less-costs-of-disposal), and IAS 38 (rare cases where revaluation is permitted).
Under IFRS 13 (UK and global), an asset-level intangible valuation is almost always Level 3 — the inputs include forward-looking cash flow projections, asset-specific royalty rates, and asset-specific discount rates that are not observable in active markets. Level 3 measurements carry the heaviest disclosure burden under paragraph 93 and the most audit scrutiny.
Common pitfalls in IFRS 13
- Confusing entity-specific value (e.g., value-in-use) with fair value (a market-participant view) — they are different concepts; only IFRS 13 fair value satisfies the standard
- Inadequate Level 3 disclosure — IFRS 13 paragraph 93 requires significant unobservable inputs to be disclosed quantitatively, including ranges and weighted averages
- Mixing valuation techniques inconsistently across assets in the same engagement
IAS 38 — Intangible Assets
IAS 38 (Intangible Assets) governs intangibles outside of business combinations: how to recognise an internally generated intangible, how to measure intangibles on the balance sheet, how to amortise them, and how to derecognise them. It also covers the post-acquisition life of intangibles initially recognised under IFRS 3.
What IAS 38 covers
- Definition of an intangible asset — an identifiable non-monetary asset without physical substance (paragraph 8)
- Recognition criteria — probable future economic benefits + reliably measurable cost (paragraph 21); for internally generated intangibles, a separate set of stricter criteria applies (paragraphs 51-67)
- Initial measurement — at cost for separately acquired or internally generated intangibles; at fair value for intangibles acquired in a business combination (cross-reference to IFRS 3) or by government grant
- Subsequent measurement — cost model (default) or revaluation model (rare; requires an active market — paragraph 75)
- Amortisation — finite-life intangibles amortised over their useful life on a systematic basis; indefinite-life intangibles not amortised but tested for impairment annually (paragraph 88-110)
- Impairment — cross-reference to IAS 36
When IAS 38 applies
IAS 38 applies to all intangible assets except those covered by other standards (goodwill from business combinations → IFRS 3; financial instruments → IFRS 9; deferred tax assets → IAS 12). It is the lifecycle standard — every intangible on a balance sheet falls under IAS 38 once recognised, regardless of how it got there.
Internally generated intangibles under IAS 38
IAS 38 prohibits recognition of internally generated:
- Brands (paragraph 63)
- Mastheads, publishing titles, customer lists, and items similar in substance (paragraph 63)
- Goodwill (paragraph 48)
Internally generated development costs can be capitalised only if six strict criteria are met (paragraph 57); research costs are always expensed (paragraph 54).
A UK SaaS business invests £4m per year building its brand, customer database, and proprietary technology. Under IAS 38, the brand and customer database cannot be recognised at all (paragraph 63). The technology can be capitalised only for development costs after the six recognition criteria are met (typically post-prototype, pre-launch); pre-research expenses are expensed. The same brand and customer database would be fully recognised at fair value if the business were acquired under IFRS 3.
Common pitfalls in IAS 38
- Attempting to recognise internally generated brands or customer lists (paragraph 63 prohibits)
- Capitalising research costs (paragraph 54 prohibits)
- Failing to apply the six development-cost recognition criteria rigorously
- Inappropriately classifying an intangible as indefinite-life to avoid amortisation
- Inconsistent useful-life assumptions versus the original IFRS 3 PPA
How the Three Standards Interact
The standards are not parallel choices — they are sequential layers in the lifecycle of an intangible asset. The sequence runs:
| Lifecycle stage | Standard | What it governs |
|---|---|---|
| 1. Pre-acquisition (internal generation) | IAS 38 (paragraphs 51-67) | Whether internally generated intangibles can be recognised at all |
| 2. Business combination (acquisition date) | IFRS 3 | Which intangibles must be recognised separately from goodwill |
| 3. Initial measurement at acquisition | IFRS 13 + IFRS 3 paragraph 18 | Fair value of each identified intangible at acquisition date |
| 4. Initial measurement of separately acquired or internally generated intangibles | IAS 38 paragraphs 24-67 | Cost basis for recognition |
| 5. Subsequent measurement | IAS 38 paragraphs 72-87 | Cost model (default) or revaluation model |
| 6. Amortisation | IAS 38 paragraphs 88-110 | Useful life, systematic amortisation, residual value |
| 7. Impairment testing | IAS 36 (with IFRS 13 for FVLCD measurement) | Annual impairment for indefinite-life and indicator-driven for finite-life |
| 8. Derecognition | IAS 38 paragraphs 112-117 | Disposal or end of useful life |
IFRS 3 is the entry point (acquisition). IFRS 13 is the measurement engine (fair value). IAS 38 is the lifecycle standard (everything else). A customer relationship recognised under IFRS 3 at fair value under IFRS 13 is then amortised under IAS 38 — the same asset under three standards as it moves through its life.
Side-by-Side Comparison
The table below is the practitioner's quick reference across the three standards.
| Dimension | IFRS 3 (Business Combinations) | IFRS 13 (Fair Value Measurement) | IAS 38 (Intangible Assets) |
|---|---|---|---|
| Primary scope | Recognition + measurement of assets and liabilities acquired in a business combination | Definition of fair value + framework for measuring it | Recognition, measurement, amortisation, and disposal of intangibles outside business combinations |
| When it applies | Only at acquisition date of a business combination | Whenever another standard requires or permits fair value measurement | Throughout the life of an intangible — initial recognition through derecognition |
| Key principle | Identify and separately recognise every identifiable intangible from goodwill | Fair value is the exit price in an orderly transaction between market participants | Intangibles are recognised when probable economic benefits flow and cost is measurable; internally generated brands etc. cannot be recognised |
| Measurement basis | Fair value at acquisition date (defers to IFRS 13) | Fair value defined: exit price, market-participant view, three-level hierarchy | Cost model (default) or revaluation model; fair value measurement defers to IFRS 13 |
| Treatment of internally generated intangibles | Out of scope — IAS 38 governs | Out of scope — IAS 38 governs whether they can be recognised at all | Strict prohibition on brands, customer lists, mastheads; development costs only if six criteria met |
| Treatment of acquired intangibles | Recognised separately from goodwill if identifiable; measured at fair value | Provides the fair value measurement framework | Takes over post-acquisition for amortisation, impairment cross-ref, derecognition |
| Useful life | Set at acquisition date for the PPA fair-value calculation | Not directly addressed | Finite (amortise) or indefinite (test annually); must be reassessed each period |
| Amortisation | Not addressed (post-acquisition matter) | Not addressed | Systematic over useful life for finite-life; not amortised for indefinite-life |
| Impairment | Not addressed (post-acquisition matter) | Provides fair-value-less-costs-of-disposal measurement when needed by IAS 36 | Cross-reference to IAS 36 |
| Disclosure burden | Heavy at acquisition date: assets recognised, fair-value basis, goodwill explanation | Heavy for Level 3 fair values: quantitative inputs, ranges, sensitivities | Heavy for material intangibles: useful life, amortisation method, reconciliation of carrying amount |
| UK-adopted IFRS vs IASB IFRS | Identical | Identical | Identical |
| US equivalent | ASC 805 | ASC 820 | ASC 350 (goodwill + indefinite-life) + ASC 985 (internal-use software) + others |
The two questions practitioners get wrong most often
- "Which standard applies to this asset?" — usually all three at different points in its life. If you are valuing an intangible at acquisition, IFRS 3 tells you to recognise it, IFRS 13 tells you how to measure fair value, and IAS 38 tells you the basis for amortisation from acquisition date onward
- "Can we recognise this internally generated intangible?" — IAS 38 paragraph 63 prohibits brands, customer lists, mastheads, and similar items. The only path for these to appear on the balance sheet is acquisition through a business combination under IFRS 3
A PE-backed acquirer buys a UK ecommerce business. The seller has spent £8m over five years building a brand that does not appear on the seller's balance sheet (IAS 38 paragraph 63 prohibits internally generated brand recognition). On acquisition, the brand is identifiable (separable + arising from contractual rights to the trade name) and is recognised at fair value of £14m under IFRS 3, measured under IFRS 13 using a Level 3 Relief from Royalty calculation. From acquisition date onward, the brand is amortised over a 15-year useful life under IAS 38 — the same brand, three standards, one continuous life.
FAQ
Which IFRS standard tells me to recognise a customer relationship as an intangible?
Answer
IFRS 3 (Business Combinations) — if the customer relationship is acquired in a business combination. IFRS 3 paragraph 18 requires every identifiable intangible asset to be recognised separately from goodwill at fair value. Customer relationships meet the identifiability test under paragraph 11 (they arise from contractual or legal rights, even where contracts are not formal — they are separable in the sense that they could be sold or transferred). Internally generated customer relationships are not recognisable under IAS 38 paragraph 63.
Does IFRS 13 apply to all intangible asset measurements?
Answer
IFRS 13 applies whenever another IFRS standard requires or permits fair value measurement. For intangibles, that means: acquisition-date fair value under IFRS 3, fair-value-less-costs-of-disposal in IAS 36 impairment testing, and revaluation measurement (rare) under IAS 38. IFRS 13 does not apply to cost-basis measurement under IAS 38 (the default for separately acquired or internally generated intangibles).
What is the difference between IFRS 13 fair value and IAS 36 value-in-use?
Answer
They are different concepts. IFRS 13 fair value is a market-participant exit price — the amount a hypothetical buyer would pay in an orderly transaction. IAS 36 value-in-use is an entity-specific present value of the future cash flows the entity expects to derive from continued use of the asset. The two will produce different numbers in many cases — IAS 36 requires the higher of fair-value-less-costs-of-disposal and value-in-use as the recoverable amount, precisely because the two concepts diverge.
Can I recognise an internally generated brand under IFRS?
Answer
No. IAS 38 paragraph 63 explicitly prohibits recognition of internally generated brands, mastheads, publishing titles, customer lists, and items similar in substance. The IASB's reasoning is that the cost of these items cannot be reliably distinguished from the cost of developing the business as a whole. The only path to balance-sheet recognition is acquisition: when a business is acquired, its brand becomes identifiable under IFRS 3 and is measured at fair value under IFRS 13.
Are amortisation rules in IFRS 3 or IAS 38?
Answer
IAS 38. IFRS 3 sets the initial fair-value measurement at acquisition date but does not address subsequent amortisation. IAS 38 paragraphs 88-110 govern amortisation: useful life is finite (amortise systematically) or indefinite (do not amortise, test annually for impairment); the method should reflect the pattern of consumption of economic benefits; residual value is presumed zero unless evidence supports otherwise.
How do the three standards relate to the AICPA Practice Aid?
Answer
The AICPA Practice Aid is a US-authored guidance document widely cited as best practice for income-approach valuation. It sits within the US framework (ASC 805 / ASC 820 / ASC 350) but its methodological recommendations — particularly MPEEM for primary intangibles and the contributory asset charge framework — are routinely applied under IFRS 3 + IFRS 13 + IAS 38. The Practice Aid is not binding outside the US, but its conventions have become the de facto international standard for income-approach intangible valuation.
What changes when an intangible moves from finite life to indefinite life under IAS 38?
Answer
The asset stops being amortised and starts being tested for impairment annually instead (IAS 38 paragraph 107 + IAS 36 paragraph 10(a)). A change from finite to indefinite is a change in accounting estimate under IAS 8 — applied prospectively. The reverse change (indefinite to finite) is also possible and is treated the same way. Both directions require disclosure of the reason for the reassessment.
Does UK GAAP (FRS 102) have equivalents to all three standards?
Answer
Partially. FRS 102 Section 18 (Intangible Assets Other than Goodwill) covers intangibles broadly equivalent to IAS 38, with significant simplifications (development costs may be expensed or capitalised at policy choice; useful life capped at 10 years if not reliably estimable). FRS 102 Section 19 covers business combinations (broadly equivalent to IFRS 3 with simplifications). FRS 102 does not have a separate fair value standard equivalent to IFRS 13 — fair value measurement guidance is embedded in the relevant sections. UK groups reporting under IFRS apply IFRS 3 + IFRS 13 + IAS 38 directly.
When to Seek Expert Support
Applying IFRS 3 + IFRS 13 + IAS 38 to a real acquisition is dense work. The combination of identifying every separable intangible, building a defensible Level 3 fair-value measurement for each, and locking down useful-life assumptions that will hold across amortisation, impairment testing, and audit scrutiny is one of the most-challenged areas in the IFRS framework.
Opagio's Asset Valuator module (within Opagio Intangibles) automates the asset identification, Level 3 fair-value measurement, and post-acquisition amortisation schedule that consume the most engagement time. The output is structured for review by a qualified valuer — methodology, defensibility narrative, and audit-trail evidence are produced in a format that maps directly to the IFRS 3 acquisition-date disclosure, IFRS 13 paragraph 93 Level 3 disclosure, and IAS 38 reconciliation requirements.
For complex deals — multi-jurisdictional groups, indefinite-life assets, deals where intangibles are material to the transaction multiple — the right pattern is to automate the mechanical work and have a qualified specialist review the assumptions and sign the report.
Book a demo: See how Asset Valuator handles a full PPA under IFRS 3 + IFRS 13, then carries the same assets forward into IAS 38 amortisation and IAS 36 impairment testing. Book a demo or speak to our team.
Related Glossary Terms
Learn More
Ready to Value Your Intangible Assets?
Use Opagio's valuation tools to apply these methods to your own business.