Search for IFRS intangible asset valuation and you will find IAS 38. But IAS 38 does not ask anyone to value an intangible asset in the ordinary course. It measures them at cost (IAS 38.24) and, after recognition, at cost less amortisation and impairment. The only exception, the revaluation model, needs an active market that almost no intangible asset has.
Valuation enters IFRS through three other standards. IFRS 3 asks for the fair value of the identifiable intangible assets an acquirer buys, with narrow exceptions such as reacquired rights (IFRS 3.29). IAS 36 asks for a recoverable amount when an asset may be impaired. IFRS 13 defines what fair value means wherever another standard asks for it. Each asks a different question, so the same asset can carry three different numbers.
The method follows the question. IFRS 3 and IFRS 13 ask what a market participant would pay; IAS 36 also asks what the asset is worth to the company that holds it. Pick the standard first, then the basis, then the method.
| Standard | When it asks for a value | Basis | Typical method |
|---|---|---|---|
| IAS 38 | Only if the revaluation model is chosen for a class with an active market (IAS 38.75) | Fair value under IFRS 13, by reference to the active market | Market approach (quoted prices) |
| IFRS 3 | Every business combination, at the acquisition date (IFRS 3.18) | Fair value under IFRS 13 | Income approach for most assets; cost approach for some |
| IAS 36 | When there is an indication of impairment, and every year for indefinite-life assets, assets not yet available for use and goodwill | Recoverable amount: the higher of fair value less costs of disposal and value in use (IAS 36.18) | Discounted cash flows on each basis |
| IFRS 13 | Not a trigger: it defines fair value for the other standards | Exit price between market participants (IFRS 13.9) | Market, cost or income approach (IFRS 13.62) |
IAS 38 also uses fair value at initial recognition in two narrow cases: an asset received through a government grant may be recorded at fair value (IAS 38.44), and an asset received in an exchange is measured at fair value unless the exchange lacks commercial substance or the fair value of neither asset can be measured reliably (IAS 38.45).
When a company acquires a business, IFRS 3 requires it to recognise every identifiable intangible asset separately from goodwill, at acquisition-date fair value. IAS 38.33 treats the probability and reliable-measurement tests as met for these assets, so the question is identification and value, not whether to recognise. This is the purchase price allocation, and it is where most intangible asset valuations under IFRS happen.
Fair value here is the price a market participant would pay, not what the acquirer paid or plans to do. Synergies only the acquirer can achieve are excluded, and an asset the acquirer intends not to use, such as a competitor's brand it will retire, is still valued at what other market participants would pay for it.
| Asset | Usual method | Why |
|---|---|---|
| Customer relationships | Multi-period excess earnings (MPEEM) | Usually the asset that drives the cash flows, with other assets charged as contributory assets; where technology is the primary asset, the distributor or with-and-without method is used instead |
| Brands and trade names | Relief from royalty (RFR) | Royalty rates for comparable brands can be observed |
| Developed technology and patents | RFR, or MPEEM where the technology is the primary asset | Depends on which asset earns the excess return |
| Non-compete agreements | With and without | The value is the cash flow the business would lose without the protection |
| Order backlog | MPEEM on the contracted backlog, net of contributory asset charges | Short, contracted cash flows |
| Internally used software | Cost approach (replacement cost) | No separate income stream to measure |
| Assembled workforce | Not recognised; valued only as a contributory asset | Subsumed in goodwill under IFRS 3 |
Valuers using an income approach often add a tax amortisation benefit (TAB): the value of the tax deductions a market participant would get from amortising the asset. Whether a TAB applies depends on the tax rules a market participant would face. Our guide to intangible asset valuation methods explains each method in detail, and the PPA guide includes an interactive allocation you can run with your own figures.
IAS 36.18 defines recoverable amount as the higher of an asset's fair value less costs of disposal and its value in use. An intangible asset is impaired if its carrying amount is above that figure.
The two bases answer different questions:
Many intangible assets do not generate cash inflows on their own. A brand or a customer list is then tested as part of the cash-generating unit it belongs to (IAS 36.22, 66). For indefinite-life intangibles and assets not yet available for use, the test is annual whatever the indicators (IAS 36.10). For the differences between the two bases in more depth, see value in use vs fair value.
IFRS 13 applies wherever another standard asks for fair value. Four of its principles shape every fair value measurement of an intangible asset:
| Principle | What it means for an intangible asset |
|---|---|
| Exit price (IFRS 13.9) | The price that would be received to sell the asset (an exit price), not the price the holder paid (an entry price) (IFRS 13.57); a cost approach estimates it from what a buyer would pay to replace the asset |
| Market participants (IFRS 13.22) | Assumptions a typical buyer would use, not the holder's own plans |
| Highest and best use (IFRS 13.27) | The value in the use that maximises it for market participants, even if the holder uses it differently |
| Hierarchy (IFRS 13.72) | Quoted prices (Level 1) are rare for intangibles; most valuations rely on unobservable inputs (Level 3). Where FVLCD is used and an impairment loss is recognised or reversed, or the unit holds significant goodwill or indefinite-life intangibles, IAS 36.130(f) and 134(e) require the level, the technique and the key assumptions to be disclosed |
Because most intangible asset valuations are Level 3, the judgements behind them (royalty rates, attrition, discount rates, useful lives) are what auditors and buyers test. A valuation is only as defensible as the evidence for those inputs. Many valuers also apply the International Valuation Standards, including IVS 210 for intangible assets.
The difference between the standards is easiest to see on one asset. Take a consumer brand bought by a buyer that reports under IFRS, such as a listed group. For illustration, assume the brand's cash inflows can be measured separately, so it can be tested on its own (IAS 36.22); in practice a brand is usually tested within its cash-generating unit, where any loss is allocated first to goodwill (IAS 36.104-105).
| Context | Standard | Basis | Illustrative value |
|---|---|---|---|
| The brand was built by the company that owns it | IAS 38.63 | Not recognised | £0 on the balance sheet |
| A buyer acquires the company | IFRS 3, IFRS 13 | Fair value (RFR, including a TAB) | £6.0m in the buyer's PPA |
| A year later, sales slow and the buyer runs its annual test (the brand has an indefinite life, so it is still carried at £6.0m) | IAS 36 | Recoverable amount: the higher of FVLCD (£5.6m) and value in use (£5.4m) | £5.6m, so an impairment loss of £0.4m |
Nothing about the brand changed between the first two rows. The seller could not recognise it; the buyer had to. The third row shows why the basis matters: value in use reflects the buyer's own pre-tax cash flows, while fair value reflects what any market participant would pay, and IAS 36 takes whichever is higher.
US GAAP is broadly converged on the fair value side: ASC 805 requires intangibles acquired in a business combination at fair value, and ASC 820 defines fair value in substantially the same way as IFRS 13. The impairment side differs. US GAAP has no value-in-use concept: an indefinite-lived intangible is compared with its fair value, and a finite-lived intangible is first tested for recoverability on undiscounted cash flows under ASC 360 before being written down to fair value. Private companies may also elect not to recognise separately customer-related intangible assets that are not capable of being sold or licensed independently, and non-compete agreements, subsuming them into goodwill; the election requires adopting the private-company alternative of amortising goodwill over ten years or less.
Most UK and Irish private companies, and many private-equity-owned groups, report under FRS 102 rather than IFRS. Three differences change the numbers above. No intangible asset has an indefinite life: every one is amortised, over at most 10 years in the exceptional cases where its life cannot be reliably estimated (18.19-18.20), so the brand in the illustration would be amortised. Goodwill is amortised too. And in a business combination, an intangible must be recognised separately from goodwill only if it meets the recognition criteria, is separable and arises from contractual or legal rights (18.8); recognising one that meets only one of those two tests is a policy choice, applied to the whole class. See IAS 38 vs FRS 102 Section 18.
Every row in the first table ends in a method, and every method needs inputs: a royalty rate, an attrition curve, a discount rate, a useful life. The Asset Valuator in Opagio Intangibles runs these methods (relief from royalty, MPEEM, with and without, and cost approaches) on a company's own data. Its values are a separate, labelled comparator: they are never added to the company's reported, capitalised or modelled figures. For investors assessing what they are buying, see Opagio for investors.
It depends on which standard asks. IAS 38 carries intangibles at cost unless an active market allows revaluation. IFRS 3 requires intangibles acquired in a business combination at fair value, measured under IFRS 13, usually by an income approach such as relief from royalty or MPEEM. IAS 36 requires a recoverable amount, the higher of fair value less costs of disposal and value in use, when impairment is tested.
No. IAS 38 measures intangible assets at cost on recognition (IAS 38.24) and allows the revaluation model only where fair value can be measured by reference to an active market (IAS 38.75), which is rare. Fair value applies to intangibles acquired in a business combination, under IFRS 3.
Fair value is the price a market participant would pay, measured under IFRS 13. Value in use is the present value of the cash flows the asset will generate for the company that holds it, in its current condition and before tax (IAS 36). Recoverable amount for an impairment test is the higher of the two, after deducting disposal costs from fair value.
Usually the multi-period excess earnings method, because customer relationships are often the asset that generates the excess return in an acquired business; other assets used to serve the customers are charged as contributory assets. Where another asset, such as technology, is valued with MPEEM instead, customer relationships are usually valued with the distributor or with-and-without method.
Tony Hillier is Co-Founder and Chairman of Opagio and a former director at N M Rothschild and GEC Finance, with 30 years in valuation, due diligence and structured finance. Meet the team.
Opagio Intangibles runs RFR, MPEEM, With & Without and Cost across every intangible asset you own — the evidence base that survives Fair Value scrutiny.
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