Internally Generated Brands (IAS 38.63)
Definition
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. IAS 38.64 gives the reasoning: expenditure on those items cannot be distinguished from the cost of developing the business as a whole. The rule turns on how the asset arose, not on whether it has value. A brand or customer list acquired separately, or identified in a business combination under IFRS 3, is a different question and follows the acquisition rules. Worked example: a consumer business spends £400,000 over three years on a rebrand, trade-name design work and a customer-data programme. The economic asset is real and a purchaser would pay for it, but under IAS 38.63 the internally generated brand and customer list are not carried on the statutory balance sheet — while the same assets would be separately identified and measured had the business been bought. Jurisdiction contrast: US GAAP arrives at a similar place through ASC 350-20 and ASC 350-30, with internally developed intangibles generally expensed; FRS 102 s.18 follows IAS 38 in prohibiting internally generated brands. The judgement management makes is not whether to argue with the prohibition but where the boundary sits — which spend is general brand building, and which is the directly attributable cost of a separately identifiable right.
Taking a defensible position
The position
IAS 38.63 does not permit an entity to recognise internally generated brands, mastheads, publishing titles and customer lists, or items similar in substance to them. IAS 38.64 gives the reason: expenditure on those items cannot be distinguished from the cost of developing the business as a whole. The paragraph addresses how the asset arose — separately acquired items, and those identified in a business combination, follow different rules.
A defensible posture
The defensible posture accepts the prohibition where it applies and is precise about where it does not. Registered rights, separately acquired lists and the directly attributable costs of obtaining a legal right sit outside the IAS 38.63 family and are assessed on their own terms. A management team that records brand and customer investment as investment for internal reporting, while leaving the statutory position untouched, keeps both records honest and loses nothing.
Evidence to hold
- A spend analysis separating general brand-building activity from the directly attributable cost of registering or acquiring a specific legal right.
- Registration certificates, assignment agreements or purchase invoices for any brand asset that was acquired rather than internally generated.
- Contemporaneous records showing when and from whom a customer list or trade name was purchased, where the entity holds an acquired one.
- An internal management record of brand and customer investment, kept separately from the statutory ledger, with its basis of preparation documented.
- Marketing plans and approvals showing what the expenditure was intended to achieve, so the population can be described rather than assumed.
The challenge you may face
A diligence reviewer will look for brand or customer-related expenditure carried as an asset and ask which paragraph supports it. Expect questions on whether an item described as a registered right is genuinely separable, whether the costs attributed to it are directly attributable rather than general marketing, and whether a list said to be acquired traces to a transaction. The working assumption in the room is that the IAS 38.63 family was internally generated.
Complementary Terms
Concepts that frequently appear alongside Internally Generated Brands (IAS 38.63) in practice.
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.
An intangible asset created within the business (R&D output, brand, customer relationships, organisational know-how) rather than acquired through a transaction. IAS 38 conservatism rules make these difficult to capitalise on statutory books — six development-cost capitalisation criteria must all be met.
The effect a brand has on how customers think and behave: their awareness of it, the associations and perceived quality they attach to it, and their loyalty to it (the Aaker and Keller models). Brand equity is a consumer and marketing concept, measured with surveys, tracking studies, retention and price premium data, and it influences pricing power, customer loyalty and market share.
An intangible asset representing the value embedded in a company's established customer base, including contracts, loyalty, and recurring revenue. Under IFRS 3, customer relationships are separately identified and measured at fair value during purchase price allocations, typically using the Multi-Period Excess Earnings Method (MPEEM) which projects cash flows from the existing customer base over its expected attrition period.
An intangible asset that arises when a company is acquired for more than the fair value of its net identifiable assets. Under IFRS 3, goodwill represents the future economic benefits from assets acquired in the business combination that are not individually identified and separately recognised, including expected synergies and the assembled workforce.
In-process research and development (IPR&D) is a project acquired part-way through — bought as a standalone asset or picked up in a business combination — where the underlying work is incomplete at the acquisition date. Its treatment differs sharply from the same activity performed in-house, and the difference is a common source of confusion.
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.
A customer loyalty metric derived from a single survey question asking respondents how likely they are to recommend a company, product, or service on a scale of zero to ten. NPS is widely used as a proxy for customer relationship quality and brand strength, both of which are critical intangible assets influencing long-term enterprise value.
Further Reading
Exit readiness — what a buyer looks for
Why brand and customer investment is invisible on the balance sheet a buyer sees, and what to do about it.
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