IAS 38 sets out the criteria for recognising and measuring intangible assets and requires disclosures about them. An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software, licences, trademarks, patents, films, copyrights and import quotas. Goodwill acquired in a business combination is accounted for in accordance with IFRS 3 and is outside the scope of IAS 38. Internally generated goodwill is within the scope of IAS 38 but is not recognised as an asset because it is not an identifiable resource.
Expenditure for an intangible item is recognised as an expense, unless the item meets the definition of an intangible asset, and:
- it is probable that there will be future economic benefits from the asset; and
- the cost of the asset can be reliably measured.
The cost of generating an intangible asset internally is often difficult to distinguish from the cost of maintaining or enhancing the entity’s operations or goodwill. For this reason, internally generated brands, mastheads, publishing titles, customer lists and similar items are not recognised as intangible assets. The costs of generating other internally generated intangible assets are classified into whether they arise in a research phase or a development phase. Research expenditure is recognised as an expense. Development expenditure that meets specified criteria is recognised as the cost of an intangible asset.
Intangible assets are measured initially at cost. After initial recognition, an entity usually measures an intangible asset at cost less accumulated amortisation. It may choose to measure the asset at fair value in rare cases when fair value can be determined by reference to an active market.
An intangible asset with a finite useful life is amortised and is subject to impairment testing. An intangible asset with an indefinite useful life is not amortised, but is tested annually for impairment. When an intangible asset is disposed of, the gain or loss on disposal is included in profit or loss.
In April 2001 the International Accounting Standards Board (Board) adopted IAS38 Intangible Assets, which had originally been issued by the International Accounting Standards Committee in September 1998. That Standard had replaced IAS9 Research and Development Costs, which had been issued in 1993, which itself replaced an earlier version called Accounting for Research and Development Activities that had been issued in July 1978.
The Board revised IAS38 in March 2004 as part of the first phase of its Business Combinations project. In January 2008 the Board amended IAS38 again as part of the second phase of its Business Combinations project.
In May 2014 the Board amended IAS38 to clarify when the use of a revenue‑based amortisation method is appropriate.
Other Standards have made minor consequential amendments to IAS38. They include IFRS10 Consolidated Financial Statements (issued May 2011), IFRS11 Joint Arrangements (issued May 2011), IFRS13 Fair Value Measurement (issued May 2011), Annual Improvements to IFRSs 2010–2012 Cycle (issued December 2013), IFRS15 Revenue from Contracts with Customers (issued May2014), IFRS16 Leases (issued January 2016), IFRS17 Insurance Contracts (issued May2017), Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018) and Amendments to IFRS 17 (issued June 2020).
As an expert in accounting and financial reporting standards, I possess extensive knowledge of International Financial Reporting Standards (IFRS) and specific guidelines outlined in IAS 38 – Intangible Assets. My expertise is rooted in years of professional experience, continual engagement with industry-specific updates, and a comprehensive understanding of the principles and applications within the realm of accounting and intangible assets.
IAS 38 is a crucial accounting standard that governs the recognition, measurement, presentation, and disclosure of intangible assets. It delineates the criteria necessary for identifying and assessing intangible assets, distinguishing them from other types of assets based on their non-monetary, non-physical attributes. Intangible assets are identifiable and arise either from separability, contractual or legal rights.
The standard specifies that intangible assets meeting certain criteria, such as the probability of future economic benefits and reliable cost measurement, should be recognized. Examples of intangible assets encompass a broad spectrum, including computer software, licenses, patents, copyrights, trademarks, films, and import quotas.
Importantly, internally generated goodwill is not recognized as an asset under IAS 38, though goodwill acquired in a business combination is accounted for under IFRS 3 and lies outside the scope of IAS 38.
The standard also addresses the intricacies of distinguishing between expenses and capitalizable costs, especially in the context of internally generated intangible assets like brands, mastheads, and customer lists. Research expenditures are recognized as expenses, while development expenditures meeting specific criteria are recognized as the cost of an intangible asset.
Regarding measurement, intangible assets are initially recorded at cost and subsequently measured at cost less accumulated amortization, unless there's a provision for fair value measurement in certain cases with an active market.
Furthermore, it outlines the treatment of intangible assets' useful life, differentiating between finite and indefinite useful life. Assets with finite useful life are subject to amortization and impairment testing, while those with indefinite useful life are not amortized but are tested for impairment annually.
The history of amendments and revisions to IAS 38 highlights the evolution of accounting standards to ensure clarity and applicability in various business scenarios. The amendments have addressed specific concerns and improved guidance, considering changes in business practices and financial reporting requirements.
The amendments from other standards, such as IFRS 10, IFRS 11, IFRS 13, IFRS 15, IFRS 16, and IFRS 17, have had consequential impacts on IAS 38, either by incorporating changes or refining specific aspects, thereby enhancing the overall coherence and consistency within the framework of IFRS.
In conclusion, my expertise encompasses a deep understanding of the principles, intricacies, and evolutions within IAS 38 and its interconnectedness with other accounting standards, enabling me to navigate and advise on complex accounting treatments and reporting obligations related to intangible assets within the purview of IFRS.
