Intangible Assets and IAS 38: What's Changing

Why IAS 38 Is Outdated for Modern Businesses

International Accounting Standard 38 (IAS 38) governs how intangible assets are recognised, measured, and reported in financial statements. It was last substantially revised in 2004. In the two decades since, the global economy has undergone a fundamental structural shift from tangible to intangible value creation — and IAS 38 has not kept pace.

The result is a widening gap between what companies are actually worth and what their financial statements report. For growth-stage companies, where intangible assets often represent the vast majority of enterprise value, this gap is not an accounting technicality. It is a strategic problem that affects fundraising, M&A transactions, investor relations, and capital allocation decisions.

What IAS 38 Currently Requires

Under IAS 38, an intangible asset can only be recognised on the balance sheet if it meets the three elements of the definition (IAS 38.10) and both recognition criteria (IAS 38.21):

1. Identifiable — either separable from the entity or arising from contractual or legal rights (IAS 38.12)
2. Controlled by the entity — the company has the power to obtain future economic benefits and restrict others' access to them (IAS 38.13)
3. Future economic benefits — the asset is expected to produce them (IAS 38.17), and it is probable that they will flow to the entity (IAS 38.21(a))
4. Reliable measurement — its cost can be measured reliably (IAS 38.21(b))

For externally acquired intangible assets — those purchased in a transaction — recognition is relatively straightforward. When a company acquires a patent, a customer list, or a brand through an acquisition, the purchase price provides a market-based value that can be recognised on the balance sheet.

The problem lies with internally generated intangible assets. IAS 38 draws a sharp line between research expenditure (which must be expensed immediately) and development expenditure (which can be capitalised only if specific criteria are met, including technical feasibility, intention to complete, ability to use or sell, and reliable cost measurement).

In practice, this means that most internally developed intangible assets — workforce expertise, organisational processes, data assets, brand equity, customer relationships — are expensed as incurred. They never appear on the balance sheet, regardless of their economic value.

Why This Matters for Growth-Stage Companies

This creates several practical problems.

How IAS 38 Distorts Business Reality

How Intangible Asset Standards Are Being Reformed

The International Accounting Standards Board (IASB) has acknowledged the limitations of IAS 38 and is now running a comprehensive review of the standard. Several developments are worth tracking.

Where the IASB project stands (October 2026)

At its May 2025 meeting the IASB set the project's objectives: to make information about intangibles more useful and to update IAS 38 for newer types of intangible asset and newer ways of using them. It chose to start with two streams run in parallel:

The IASB's two initial workstreams

Later stages are planned to cover intangibles held for investment (with carbon credits and cryptocurrencies as test cases), the recognition requirements more broadly, and disclosures.

At its 22 September 2026 meeting the Board continued discussing possible changes to parts of the definition and supporting requirements, and looked further at how a customer should account for intellectual-property licensing contracts, using a cloud software-as-a-service (SaaS) contract as the test case. It was not asked to make any decisions. The next milestone on the IASB work plan is "Decide project direction", with no date attached: the Board will decide whether discrete improvements to IAS 38 are possible or whether more work is needed.

Key Regulatory Developments

For how the UK private-company rules compare, see IAS 38 vs FRS 102 Section 18; for the full current standard, our IAS 38 intangible assets guide.

What Companies Should Do Now

The regulatory landscape is moving, but comprehensive reform of IAS 38 is likely still years away, and nobody yet knows what it will require. There is still useful work to do under the standard as it stands.

The current test can already be applied to a company's own ledger: which development costs met the six criteria of IAS 38.57, from which date, and which were expensed before the evidence existed and so can never be reinstated (IAS 38.71). Companies that keep dated evidence for each criterion have something an auditor can check today, whatever the IASB decides later. Our R&D capitalisation guide sets out what that evidence looks like.

More immediately, supplementary intangible asset reporting can be used today in investor communications, fundraising materials, board reporting, and M&A preparation. The fact that IAS 38 does not require this reporting does not prevent companies from providing it voluntarily — and the evidence suggests that investors increasingly value the transparency.

The practical first step is to adopt a framework for categorising and measuring intangible assets that is consistent with the direction of travel in international standards. The seven-category framework (human capital, intellectual property, data assets, customer relationships, organisational capital, innovation capital, and supplier relationships) provides a comprehensive starting point that aligns with both academic research and emerging regulatory thinking.

The Strategic Advantage of Early Intangible Asset Reporting

Every time an accounting standard lags behind economic reality, an opportunity exists for companies that move ahead of the standard. In the 1990s, companies that adopted activity-based costing before it became widespread gained better cost visibility than their competitors. In the 2000s, companies that adopted SaaS metrics before they became standard gained better investor communications.

The same dynamic applies to intangible asset measurement today. Measuring intangible investment for management purposes, clearly labelled as a management view and kept apart from the filed accounts, gives boards and investors information the balance sheet leaves out, whether or not the standard changes.

Start measuring your intangible assets with Opagio Intangibles, or explore key terms in our Glossary.

This is the seventh in a series of articles on intangible asset valuation and growth accounting. Read the complete guide: The Complete Guide to Intangible Asset Valuation