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

Intangible assets such as patents, trademarks, customer lists, and software play an increasingly significant role in enterprise value, particularly in technology, pharmaceutical, and service-based industries. Both IFRS (IAS 38) and US GAAP (ASC 350, ASC 985-20, ASC 805) provide comprehensive frameworks for recognizing, measuring, and disclosing intangible assets. Despite shared concepts, key differences exist in the treatment of development costs, revaluation options, amortization, and impairment testing. Understanding these distinctions is vital for presenting a faithful picture of the entity's long-term value and innovation capacity.

Intangible assets must be identifiable, controlled, and provide future economic benefits.

Under both standards, an intangible asset must meet the following criteria to be recognized:

• Identifiability: The asset must be separable or arise from contractual/legal rights.

• Control: The entity must have the power to obtain benefits and restrict others’ access.

• Future economic benefits: There must be a probable inflow of economic benefits.

Examples of intangible assets include:

• Acquired trademarks, brands, and domain names

• Patents and licenses

• Internally developed software

• Customer lists from acquisitions

• Copyrights, franchises, and publishing rights

Intangibles can be acquired separately, acquired through business combinations, or internally generated. Accounting treatment varies accordingly.

Development costs are treated differently under IFRS and US GAAP.

One of the most notable differences lies in the capitalization of development expenditures.

• IFRS (IAS 38): Allows capitalization of development costs if six specific criteria are met, including technical feasibility, intent and ability to complete, and reliable measurement of costs. Research costs are always expensed.

• US GAAP: Generally prohibits capitalization of internal development costs (except for specific guidance like software development, website costs, and cloud computing arrangements). Research and development (R&D) costs are usually expensed as incurred under ASC 730.

Aspect	IFRS (IAS 38)	US GAAP (ASC 350, ASC 730, ASC 985-20)
Research costs	Expensed	Expensed
Development costs	Capitalized if criteria met	Expensed (with narrow exceptions)
Software development	Capitalized after feasibility	Capitalized after feasibility
Internally generated goodwill	Not recognized	Not recognized

Amortization is required unless the intangible asset has an indefinite life.

Under both frameworks, intangible assets are categorized as either finite-lived or indefinite-lived, which determines how they are amortized or tested for impairment:

• Finite-lived assets (e.g., patents, software): Amortized over the useful life on a systematic basis.

• Indefinite-lived assets (e.g., some trademarks, broadcast rights): Not amortized, but subject to annual impairment testing.

Amortization methods must reflect the pattern in which the asset’s economic benefits are consumed. If no reliable pattern can be determined, straight-line amortization is used.

Impairment testing is required when triggering events occur—or annually for indefinite-lived assets.

IFRS (IAS 36):

• Test for impairment when indicators of impairment exist (e.g., decline in market value, legal changes).

• Compare carrying amount with recoverable amount (higher of fair value less costs to sell and value in use).

• If impaired, reduce the carrying amount to the recoverable amount. Reversal of impairment is permitted (except for goodwill).

US GAAP (ASC 350/360):

• Also requires testing when there are triggering events.

• Uses a two-step test (or one-step for some assets) comparing carrying amount with fair value.

• No reversal of impairment losses is permitted under US GAAP.

Revaluation is permitted only under IFRS.

• IFRS (IAS 38) allows entities to use the revaluation model for intangible assets with an active market (rare in practice). Under this model, assets are carried at fair value less subsequent amortization.

• US GAAP does not permit revaluation of intangible assets after initial recognition.

This leads to potential differences in balance sheet presentation, especially for entities with significant brand assets or acquired portfolios.

Presentation and disclosure must reflect the asset’s nature and accounting treatment.

Both standards require detailed disclosures, including:

Disclosure area	IFRS (IAS 38)	US GAAP (ASC 350/805)
Useful lives and amortization	Required	Required
Amortization methods and periods	Required	Required
Reconciliation of carrying amounts	Required, with movement analysis	Not always required in the same detail
Impairment losses and reversals	Amounts and events disclosed	Impairments disclosed, reversals not applicable
Internally generated vs acquired	Required distinction	Required distinction

Key differences between IFRS and US GAAP for intangible assets.

Topic	IFRS (IAS 38)	US GAAP
Capitalization of development	Permitted if criteria met	Rarely permitted
Amortization	Required for finite-lived assets	Required for finite-lived assets
Impairment reversals	Permitted (except for goodwill)	Not permitted
Revaluation model	Permitted if active market exists	Not permitted
Software-specific guidance	Embedded in IAS 38	Detailed under ASC 985-20, ASC 350-40

Preparers must carefully evaluate project stages, documentation, and asset classification policies to remain compliant. Strategic decisions—such as whether to capitalize certain software costs or brand investments—can have lasting effects on profitability, valuation, and comparability between entities reporting under different frameworks. ____________

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