IAS 38 (Intangible Assets)
Definition
The International Accounting Standard governing the recognition, measurement, and disclosure of intangible assets. IAS 38 requires that an intangible asset be identifiable, controlled by the entity, and expected to generate future economic benefits. Notably, internally generated brands, customer lists, and similar items cannot be capitalised under this standard. The judgement management makes is which items genuinely meet the recognition criteria, and whether the records supporting each were created at the time rather than assembled afterwards.
Taking a defensible position
The position
IAS 38 recognises an intangible asset only where it is identifiable, controlled by the entity and expected to generate probable future economic benefits, and where its cost can be measured reliably. The standard then restricts internally generated items: internally generated goodwill is never recognised under IAS 38.48, and IAS 38.63 does not permit recognition of internally generated brands, mastheads, publishing titles and customer lists.
A defensible posture
The position most management teams can defend is a narrow one held well: identify the small number of items that genuinely meet the recognition criteria, document them as the criteria were met, and account for the rest as period cost while tracking it separately for internal purposes. A framework applied consistently across periods and projects carries more weight in review than an ambitious position taken once.
Evidence to hold
- A written recognition policy naming the criteria applied and the point in a project at which each is assessed.
- Project-level cost records for any expenditure carried forward as an intangible asset.
- Board or management approval records dated at the time each recognition decision was taken.
- Contracts, registrations or assignments supporting control over each recognised asset.
- Useful-life and impairment assessments reviewed each reporting period.
The challenge you may face
An auditor or diligence reviewer will start with the recognised balance and ask which criterion supports each item, then look for expenditure carried forward without a contemporaneous assessment. Expect probes on control — whether the entity can restrict others’ access to the benefits — and on whether items in the IAS 38.63 family have been recognised under another description.
Complementary Terms
Concepts that frequently appear alongside IAS 38 (Intangible Assets) in practice.
Subsequent expenditure on an intangible asset is spend incurred after the asset has been recognised — renewing and maintaining a registered right, defending it, upgrading software already in use, or continuing to invest in an asset already carried on the balance sheet. Under IAS 38.20 (IFRS), subsequent expenditure is normally recognised in profit or loss as incurred.
Intangible assets that are not captured on a company's balance sheet or in traditional accounting frameworks, including internally generated brands, proprietary data, organisational culture, and employee expertise. These often represent the largest source of hidden value in modern businesses.
Resources owned or controlled by an entity that are expected to provide future economic benefits. Assets are classified as either tangible (physical items such as property, plant, and equipment) or intangible (non-physical items such as intellectual property, brand equity, customer relationships, and proprietary technology).
Tax deductions available to businesses in the United Kingdom for qualifying expenditure on certain assets, effectively reducing the taxable profit by allowing the cost of the asset to be written off over time. Capital allowances are particularly relevant to intangible asset investment because the UK tax regime provides specific relief for expenditure on intellectual property, patents, know-how, and certain other intangible assets.
Cloud configuration costs are the amounts a business spends setting up software it accesses as a service rather than owns — configuring a platform to its own processes, customising it, migrating data into it, and training its people. The accounting question is whether that spend creates an intangible asset for the customer.
A classification framework for intangible investment developed by economists Carol Corrado, Charles Hulten, and Daniel Sichel. The CHS framework identifies three broad categories of intangible capital: computerised information (software, databases), innovative property (R&D, design, new products), and economic competencies (brand equity, organisational capital, firm-specific training).
The unintended transfer of knowledge from one firm or sector to others, creating wider economic benefits that the original investor cannot fully capture. Knowledge spillovers are a defining characteristic of intangible investment and a key justification for public policy support of R&D, education, and innovation.
Website development costs are the amounts a business incurs building and launching its own web site. Under IFRS, SIC-32 (“Intangible Assets — Web Site Costs”) applies IAS 38 to the activity by splitting a project into stages: planning, application and infrastructure development, graphical design, content development, and the operating stage that follows launch.
Further Reading
AI and IAS 38: When Can You Capitalise AI Development Costs?
IAS 38 sets six criteria for capitalising development costs, but applying them to AI projects is fraught with ambiguity. This article maps each criterion to AI development realities and provides practical guidance for CFOs and accountants navigating the recognition question.
Read more →Related FAQ
What is the difference between tangible and intangible assets?
Tangible assets have physical form: land, buildings, machinery, vehicles and stock. Intangible assets have none: they are identifiable non-monetary assets such as patents, trade marks, software and customer contracts.
Read full answer →What is the difference between a startup's valuation and its intangible asset value?
A startup's headline valuation reflects market pricing (what investors will pay), while intangible asset value reflects the fair value of identifiable assets — the difference is typically attributable to goodwill, growth expectations, and market s...
Read full answer →What are the key steps in performing a purchase price allocation?
PPA involves identifying all tangible and intangible assets acquired, valuing each at fair value using appropriate methods, allocating the purchase price across them, and recording the residual as goodwill.
Read full answer →Put this knowledge to work
Use Opagio's free tools to measure and grow the intangible assets that drive your business value.