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.

Development Costs (IAS 38)

Development costs are the expenditure incurred applying research findings to a plan or design for a new or substantially improved product, service, process or system before it enters commercial production or use. Under IAS 38 (IFRS — the default framework for UK groups reporting under adopted IFRS), the standard divides the work into two phases and treats them differently.

Internally Generated Brands (IAS 38.63)

Internally generated brands are brand assets a business builds itself over time rather than acquiring them in a transaction. IAS 38.63 (IFRS) names a specific family — internally generated brands, mastheads, publishing titles and customer lists, together with items similar in substance — and does not permit their recognition as intangible assets.

Subsequent Expenditure (IAS 38)

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.

FRS 102 Section 18 (Intangible Assets other than Goodwill)

The section of the UK and Republic of Ireland financial reporting standard that governs the recognition, measurement, and disclosure of intangible assets other than goodwill for entities not applying IFRS. Section 18 requires intangible assets to be measured at cost less accumulated amortisation and impairment losses, with all intangible assets presumed to have a finite useful life.

Useful Life (Intangible Assets)

The period over which an intangible asset is expected to contribute to future cash flows, determining the duration of amortisation. Useful life may be finite (e.g., a patent term) or indefinite (e.g., a perpetually renewed trademark), and its estimation requires careful analysis of technological, legal, and competitive factors.

IAS 36 (Impairment of Assets)

The IFRS standard that establishes procedures to ensure assets are carried at no more than their recoverable amount — the higher of fair value less costs of disposal and value in use. IAS 36 requires impairment testing whenever there is an indication of impairment, and at least annually for goodwill and intangible assets with indefinite useful lives.

Goodwill

An intangible asset that arises when a company is acquired for more than the fair value of its net identifiable assets. Goodwill reflects factors such as brand value, customer loyalty, workforce expertise, and synergies that are expected to generate future economic benefits.

Unmeasured Intangibles

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.

Tangible assets are physical items like buildings, machinery, and inventory. Intangible assets are non-physical sources of value — patents, brands, software, customer relationships. Intangibles now drive most enterprise value.

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