How to account for intangible assets under IFRS and US GAAP: Recognition, amortization, and impairment rules

Graziano Stefanelli
7 hours ago
3 min read

Intangible assets represent non-physical resources that generate future economic benefits, such as patents, trademarks, software, and licenses. While both IFRS (IAS 38) and US GAAP (ASC 350, ASC 985-20) offer frameworks for recognizing and measuring intangible assets, they differ significantly in how intangibles are defined, how internally generated assets are treated, and how subsequent amortization and impairment are handled. These differences can result in considerable divergence in reported financial results, especially in industries like technology, media, and pharmaceuticals.

Intangible assets must be identifiable, non-monetary, and lack physical substance.

Under IFRS (IAS 38), an intangible asset must meet three criteria:

Identifiability: Arises from contractual or legal rights or is separable from the entity.
Control: The entity must control the asset and restrict others from accessing benefits.
Future economic benefits: Must be probable and measurable.

Common intangible assets include:

Patents
Trademarks
Copyrights
Customer relationships
Software
Licenses
Franchise agreements
Development costs (under strict criteria)

US GAAP uses similar criteria but applies them more conservatively, particularly with internally developed intangibles.

Internally generated intangibles are treated differently under the two frameworks.

One of the most significant divergences between IFRS and US GAAP lies in the treatment of internally developed intangible assets, especially research and development (R&D).

IFRS (IAS 38):

Research costs: Expensed as incurred.
Development costs: Capitalized only if the project meets six stringent criteria (technical feasibility, intention to complete, ability to use or sell, future economic benefits, resources available, ability to measure reliably).

US GAAP (ASC 730):

All R&D costs: Expensed as incurred, with few exceptions.
Software development:
- Internal-use software (ASC 350-40): Development costs capitalized once the project reaches the application development stage.
- Software for sale (ASC 985-20): Capitalization starts once technological feasibility is established.

Area	IFRS (IAS 38)	US GAAP (ASC 730, 350, 985-20)
Research	Expensed	Expensed
Development	Capitalized if strict criteria met	Generally expensed
Software for internal use	Capitalized after development stage	Same, but detailed guidance
Software for sale	Capitalized after feasibility	Capitalized after technological feasibility

Initial measurement is at cost, with limited ability to revalue.

Under both frameworks, intangible assets are initially measured at cost, including:

Purchase price
Import duties
Directly attributable costs (legal fees, registration, testing)

IFRS allows entities to choose the revaluation model for intangibles with an active market (rare in practice), recognizing fair value through OCI. US GAAP, in contrast, does not permit revaluation—cost model only.

Amortization applies unless the intangible has an indefinite useful life.

After initial recognition:

Finite-life intangibles (e.g., licenses, software, some trademarks) are amortized over their useful lives using a systematic method.
Indefinite-life intangibles (e.g., brand names with no foreseeable limit) are not amortized, but tested annually for impairment.

IFRS requires a review of useful life and amortization method at least annually.

US GAAP also requires annual evaluation of useful life, with impairment testing performed if a triggering event occurs (or annually for indefinite-life intangibles).

Impairment testing approaches vary in methodology and reversibility.

IFRS (IAS 36):

Uses a one-step approach: Compare carrying amount to recoverable amount (greater of value in use and fair value less costs to sell).
Impairment loss = Carrying amount – Recoverable amount
Impairment reversals are allowed (except for goodwill), if indicators change.

US GAAP (ASC 350):

Finite-life intangibles: Two-step model under ASC 360.
1. Compare carrying amount to undiscounted cash flows.
2. If not recoverable, impairment = carrying amount – fair value.
Indefinite-life intangibles: One-step fair value test.
Reversals are not allowed.

Disclosures provide visibility into asset types, values, and estimates.

Both IFRS and US GAAP require detailed disclosures related to intangible assets:

Disclosure area	IFRS (IAS 38)	US GAAP (ASC 350)
Asset types and useful lives	Required	Required
Amortization methods and rates	Required	Required
Revaluation model usage	Required (if applied)	Not applicable
Impairment losses and reversals	Required (losses and reversals)	Required (losses only)
Internally generated asset disclosure	Required if development costs capitalized	Not separately disclosed unless material

Key differences between IFRS and US GAAP for intangible assets.

Area	IFRS (IAS 38)	US GAAP (ASC 350, 730, etc.)
Capitalization of development	Permitted under strict criteria	Generally prohibited
Software development	Principles-based guidance	More prescriptive and segmented
Revaluation	Allowed if active market exists	Not allowed
Amortization	Required for finite-life intangibles	Same
Impairment testing	One-step approach	Two-step for finite life; one-step for indefinite
Impairment reversals	Allowed (except for goodwill)	Not allowed

The accounting treatment of intangible assets can significantly impact reported earnings, asset valuations, and key financial ratios. Entities operating globally or across sectors with high IP investment must understand how IFRS and US GAAP differ—not only for compliance but also for managing investor expectations and aligning valuation models with accounting reality.

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