When a UK company moves from FRS 102 to IFRS, development spend can be recognised in its opening IFRS balance sheet only from the date it had both a documented assessment that the benefits were probable and a system tracking the costs. IFRS 1 allows no hindsight.
That matters most to founders heading for a Main Market listing or a sale into an IFRS-reporting group. The development asset in the first IFRS accounts is sized by the records the company kept at the time, not by what it can show today, and the same records are the evidence behind the story a buyer or investor is asked to accept.
Under FRS 102 Section 18, capitalising qualifying development costs is an accounting policy choice, and a company may expense all of it. Under IAS 38 there is no choice: once the six criteria in IAS 38.57 are demonstrated together, development expenditure must be recognised as an asset, with cost measured from the date the criteria are first met (IAS 38.65). Our glossary entry on development costs under IAS 38 lists the six criteria.
A first-time adopter applies IFRS retrospectively, subject to the exemptions and exceptions in IFRS 1. Adjustments are recognised in retained earnings at the date of transition: a company whose first IFRS statements cover the year to 31 December 2028, with one comparative year, has a date of transition of 1 January 2027. The first IFRS statements include at least three statements of financial position, one of which is the opening IFRS statement of financial position at that date.
The rule that makes development costs hard is that estimates may not use hindsight. For development spend, the question is what the company had assessed and recorded at the time, and a project that later succeeded does not prove that its early costs met IAS 38 when they were incurred.
| Event | Effect on the reporting framework |
|---|---|
| Main Market listing | Requires UK-adopted IFRS |
| A later move up from AIM to the Main Market | Requires UK-adopted IFRS at that point |
| Sale into an IFRS-reporting group | Brings the company's figures into IFRS reporting |
| AIM admission | Does not by itself force the conversion: AIM allows IFRS or FRS 102 since August 2026 |
For the AIM position in more detail, see FRS 102 for AIM companies.
The IFRS 1 implementation guidance (IG46–IG47) addresses internally generated intangible assets. The guidance accompanies IFRS 1 rather than being part of it, and it is the IASB's reading of IAS 38 (38.65 and 38.71), not a separate rule. It says development costs are capitalised in the opening IFRS position only from the date the entity had both of the following.
The entity had concluded, on an assessment made and documented at that date, that future economic benefits from the project were probable. A memo written during the conversion, describing what management believed back then, does not meet this condition.
Evidence for condition (a) is typically a board or project approval, a technical feasibility note, a funding decision, or a dated plan that evidences the six IAS 38.57 criteria at the time.
The entity had a reliable system for accumulating the costs when, or shortly after, they were incurred. Reconstructing costs later is not enough. If engineering time sat in general payroll and is allocated to the project afterwards by estimate, the costs fail this condition, however careful the estimate.
Evidence for condition (b) is project codes, timesheets, cost centres or an equivalent record that tied costs to the project as they arose.
| Condition | What it asks | Evidence made at the time | What does not count |
|---|---|---|---|
| (a) Documented assessment | Future economic benefits were assessed as probable, and the assessment was documented at that date | Board or project approvals, technical feasibility notes, funding decisions, dated plans covering the six criteria | An assessment written up during the conversion |
| (b) Cost accumulation | Costs were captured when, or shortly after, they were incurred | Project codes, timesheets, cost centres or equivalent | Costs estimated afterwards from general payroll |
Both conditions must be met, and both at the time. Costs incurred before the later of the two dates stay expensed in the opening IFRS position, however clear it is in hindsight that the project worked.
A UK software company reports under FRS 102 and expenses all development. It plans a Main Market listing, with first IFRS statements for the year to 31 December 2028 and one comparative year, so its date of transition is 1 January 2027. The figures are illustrative and rounded.
| Date or period | What happened | Spend | Condition (a) | Condition (b) | Treatment in opening IFRS position |
|---|---|---|---|---|---|
| Before 1 April 2025 | Exploratory work: research, or no documented assessment | £300,000 | Not met | Not met | Stays expensed |
| 1 April 2025 | Board approves the project; minutes record the feasibility assessment and the funding | – | Met | Not met | – |
| 1 April to 30 June 2025 | Spend sits in general payroll with no project code; it can only be estimated afterwards | £200,000 | Met | Not met | Stays expensed |
| 1 July 2025 | A project code and timesheets start | – | Met | Met | – |
| 1 July to 31 December 2025 | Development continues with costs tracked | £600,000 | Met | Met | Capitalisable |
| 1 January 2026 | Module available for use; straight-line amortisation over five years begins | – | – | – | £120,000 a year |
| 1 January 2027 | Date of transition | – | – | – | Carrying amount £480,000 |
Amortisation begins when the asset is available for use, and the asset recognised at transition is measured as though IAS 38 had always applied: cost less accumulated amortisation. One year of amortisation has run by the date of transition.
| Item | Amount |
|---|---|
| Total development spend on Project Atlas | £1,100,000 |
| Expensed: incurred before the documented assessment | £300,000 |
| Expensed: incurred without cost tracking | £200,000 |
| Capitalised at cost | £600,000 |
| Accumulated amortisation to 1 January 2027 (one year at £120,000) | (£120,000) |
| Carrying amount at the date of transition | £480,000 |
| Credit to retained earnings (ignoring tax for simplicity) | £480,000 |
| Spend that could not be recognised | £500,000 |
The board approved Atlas on 1 April 2025, and the module plainly worked. That does not change the answer. £300,000 was spent before the documented assessment and £200,000 before costs were tracked, so £500,000 of the £1.1 million could not be recognised. Evidence created at the time decided the size of the asset.
The £200,000 is the instructive figure. Condition (a) was met from 1 April 2025, and the spend was real, but without a project code the costs can only be estimated afterwards. Had the project code started on the day the board approved the project, that quarter's spend would have been capitalisable too.
A company that already capitalises under an FRS 102 policy is better placed, but it should check rather than assume. The FRS 102 and IAS 38 criteria are closely aligned, yet carrying the balance over is not automatic: each capitalised amount still needs to have met IAS 38 at the time, with evidence. The IAS 38 vs FRS 102 Section 18 comparison sets out where the standards differ, and our FAQ on how FRS 102 differs from full IFRS for intangible assets covers the wider picture.
| Question | Why it matters on transition |
|---|---|
| When did capitalisation start on each project, and is there a documented assessment from that date? | Costs before condition (a) was met stay expensed |
| Were the capitalised costs captured by project code or timesheet as they arose? | Costs estimated afterwards fail condition (b) |
| Does the file show the six IAS 38.57 criteria at the time, not only the outcome? | The test is what was known and recorded then, without hindsight |
For a framework-level view of the move, see FRS 102 vs IFRS.
The guidance looks back from the date of transition, so the work that counts happens long before anyone prepares IFRS accounts. If a Main Market listing or a sale into an IFRS group is realistic, take four steps now.
Decide the likely first IFRS year. With one comparative year, first IFRS statements for the year to 31 December 2028 give a date of transition of 1 January 2027.
Record a documented assessment when a project is approved, and open a project code or cost centre on the same day, with timesheets from the first hour of work. Starting both together closes the gap that cost Project Atlas £200,000.
For each project, keep the approvals, feasibility notes, funding decisions and plans that show the IAS 38.57 criteria were met, filed against the project they support. Our guide to R&D capitalisation under IFRS covers the evidence each criterion needs.
Compare your current policy with the IAS 38 capitalisation policy template, and work through the IAS 38 worked examples for the journal entries.
Evidence cannot be created later. A board minute drafted during the conversion about a decision taken years before, or a cost allocation estimated from payroll after the event, does not meet the conditions in the IFRS 1 guidance.
A Canadian private company reporting under ASPE that later adopts IFRS applies the same IFRS 1 mechanics: retrospective application, no hindsight in estimates, and the same implementation guidance on internally generated intangibles.
ASPE also makes capitalising development costs a policy choice, so a Canadian company that has expensed its development spend faces the same question as a UK company leaving FRS 102, and the same answer: an asset only from the date both conditions were met.
The evidence that decides an opening IFRS position comes from the company's own records: board minutes, feasibility notes, project codes and timesheets. Opagio Intangibles gives that evidence a home. The Opagio Value Drivers Register™ records each development asset with its owner and its evidence, and evidence can be uploaded against the asset with an evidence level, so the papers sit with the asset they support rather than in scattered folders.
If an IFRS move is possible, the practical step is to start a record for each development project now, while the people and papers are to hand.
Opagio does not perform IFRS conversion or audit work. Your auditor advises on the opening IFRS position and on whether your evidence supports it.
Keep each development project, its owner and its evidence in one register, ready for the questions an IFRS transition, a listing or a buyer will raise. Book a demo of Opagio Intangibles, or see how we support exit-ready companies.
Yes, from the date both conditions in the IFRS 1 implementation guidance (IG46–IG47) were met: a documented assessment made at that date that future economic benefits were probable, and a reliable system accumulating the costs when, or shortly after, they were incurred. Costs before that date stay expensed, and the asset is measured as though IAS 38 had applied: cost less accumulated amortisation.
No. A first-time adopter applies IFRS retrospectively, subject to exemptions and exceptions, but estimates may not use hindsight. For development costs, the company needs evidence created at the time. An assessment written during the conversion, or costs reconstructed later from general payroll, does not count.
No. Since August 2026, UK-incorporated AIM companies may use FRS 102 or IFRS. The Main Market requires UK-adopted IFRS, so the conversion is triggered by a Main Market listing, a later move up from AIM, or a sale into an IFRS-reporting group.
David Stroll is Co-Founder and Chief Scientist of Opagio, where he leads research on intangible asset accounting and productivity measurement. Learn more about our team.
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