1 Ultimate Guide – IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

– The comparison starts with an overview of the differences and similarities between IFRS and US GAAP, and followed by more detailed differences and similarities  on a reporting line level.

Standards Reference

US GAAP1 IFRS2

Topic 35o Intangibles-Goodwill and Other

Subtopic 610-20 Other income – Gains and losses from the Derecognition of Nonfinancial Assets

Subtopic 720-15 Other expenses – Start-up costs

Subtopic 720-35 Other expenses = Advertising costs

Topic 730 Research and development arrangements

Subtopic 985-20 Software – Costs of software to be sold, leased or marketed

 IAS 38 Intangible assets

SIC-32 Intangible assets – Web site costs

IFRS vs US GAAP Intangible assets goodwill

Note

The following discussion captures a number of the more significant GAAP differences ans similarities under both the above mentioned standards. It is important to note that the discussion is not inclusive of all GAAP differences in this area.

In overview the similarities and differences are as follows:

IFRS – Overview
US GAAP – Overview
An ‘intangible asset’ is an identifiable non-monetary asset without physical substance. Like IFRS Standards, an ‘intangible asset’ is an asset, not including a financial asset, without physical substance.
An intangible asset is ‘identifiable’ if it is separable or arises from contractual or other legal rights. Like IFRS Standards, an intangible asset is ‘identifiable’ if it is separable or  arises from contractual or other legal rights.
In general, intangible assets are recognised initially at cost. Intangible assets are recognised at cost, which is established under the relevant Codification topic/subtopic and may differ from IFRS Standards.
The initial measurement of an intangible asset depends on whether it has  been acquired separately or as part of a business combination, or was internally generated.

 

Like IFRS Standards, the initial measurement of an intangible asset depends on whether it has been acquired separately or as part of a business  combination, or was internally generated. However, there are differences from IFRS Standards in the detailed requirements.

 

Goodwill is recognised only in a business combination and is measured as a  residual. Like IFRS Standards, goodwill is recognised only in a business combination  and is measured as a residual.

 

Acquired goodwill and other intangible assets with indefinite useful lives are  not amortised, but instead are subject to impairment testing at least annually.

 

Like IFRS Standards, acquired goodwill and other intangible assets with indefinite useful lives are not amortised, but instead are subject to impairment testing at least annually. However, the impairment test differs from IFRS Standards.

 

Intangible assets with finite useful lives are amortised over their expected useful lives. Like IFRS Standards, intangible assets with finite useful lives are amortised over their expected useful lives.
Subsequent expenditure on an intangible asset is capitalised only if the definition of an intangible asset and the recognition criteria are met. Subsequent expenditure on an intangible asset is not capitalised unless it can be demonstrated that the expenditure increases the utility of the asset, which is broadly like IFRS Standards.
Intangible assets may be revalued to fair value only if there is an active market. Unlike IFRS Standards, the revaluation of intangible assets is not permitted.
Internal research expenditure is expensed as it is incurred. Internal development expenditure is capitalised if specific criteria are met. These capitalisation criteria are applied to all internally developed intangible assets.

Research

Unlike IFRS Standards, both internal research and development (R&D) expenditure is expensed as it is incurred. Special capitalisation criteria apply to software developed for internal use, software developed for sale to third parties and motion picture film costs, which differ from the general criteria under IFRS Standards.
In-process research and development (R&D) acquired in a business combination is accounted for under specific guidance

 

In-process R&D acquired in a business combination is accounted for under specific guidance, like IFRS Standards. However, that guidance differs insome respects.

 

Advertising and promotional expenditure is expensed as it is incurred.

 

Advertising and promotional expenditure is generally expensed as it is incurred, like IFRS Standards, or deferred until the advertisement is shown, unlike IFRS Standards.

 

Expenditure related to the following is expensed as it is incurred: internally generated goodwill, customer lists, start-up costs, training costs, and relocation or reorganisation.

 

Like IFRS Standards, expenditure related to the following is expensed as it is incurred: internally generated goodwill, customer lists, start-up costs, training costs, and relocation or reorganisation.

 

IFRS Definition

An ‘intangible asset’ is an identifiable non-monetary asset without physical substance. To meet the definition of an intangible asset, an item lacks physical substance and is:

  • identifiable;
  • non-monetary; and
  • controlled by the entity and expected to provide future economic benefits to the entity – i.e. meets the definition of an asset. [IAS 38.8–17]

US GAAP Definition

Under US GAAP, an ‘intangible asset’ is an asset (not including a financial asset) that lacks physical substance. Although this definition differs from IFRS Standards, we would not generally expect significant differences in practice. [350‑10‑20]

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

An intangible asset is ‘identifiable’ if it:
  • is separable: i.e. is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged either individually or together with a related contract, asset or liability; or
  • arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. [IAS 38.12]
Like IFRS Standards, an intangible asset is ‘identifiable’ if it:
  • is separable: i.e. capable of being separated or divided and sold, transferred, licensed, rented or exchanged either individually or together with a related contract, asset or liability, regardless of whether there is an intent to do so; or
  • arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. [805‑20‑20, 25‑10]
Holdings of a cryptocurrency (i.e. digital or virtual currency that is recorded in a distributed ledger and is not issued by a jurisdictional authority or other party) meet the definition of an intangible asset. If cryptocurrencies are held for sale in the ordinary course of business, then the entity applies the inventories standard (see Inventories). [IU 06-19]
IFRS vs US GAAP Intangible assets goodwill
Unlike IFRS Standards, we believe that holdings of a cryptocurrency (i.e. digital or virtual currency that is recorded in a distributed ledger and is not issued by a jurisdictional authority or other party) will often meet the definition of an intangible asset. Unlike IFRS Standards, cryptocurrencies will generally not meet the definition of inventories, because inventory under US GAAP includes only tangible property (see chapter Inventories).

IFRS Initial recognition and measurement

An intangible asset is recognised when:

  • it is probable that future economic benefits that are attributable to the asset will flow to the entity; and
  • the cost of the asset can be measured reliably. [IAS 38.21]

US GAAP Initial recognition and measurement

An identifiable intangible asset is recognised when it is acquired either individually or  with a group of other assets, unless another specific Codification topic applies (see below). Unlike IFRS Standards, there are no general criteria that apply to all intangible assets. [350‑30‑25‑1]

If an intangible asset is acquired in a business combination, then these criteria are assumed to be met. If an intangible asset is acquired in a separate acquisition (i.e. outside a business combination), then the ‘probability’ criterion is assumed to be met and the ‘reliable measurement’ criterion is usually met. [IAS 38.25–26, 33]

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

An intangible asset acquired in a business combination is recognised when it meets the contractual-legal criterion or the separability criterion. If an intangible asset is acquired in a separate acquisition (i.e. outside a business combination), then it is recognised regardless of the contractual-legal and separability criteria. Although the wording of US GAAP differs from IFRS Standards, we would not generally expect significant differences in practice. [350‑30‑25‑4]
IFRS vs US GAAP Intangible assets goodwill
An intangible asset is recognised initially at cost. [IAS 38.24]

IFRS vs US GAAP Intangible assets goodwill

Intangible assets are recognised at cost, which is established under the relevant Codification topic/subtopic and may differ from IFRS Standards.
The cost of an intangible asset acquired in a separate acquisition is the cash paid or the fair value of any other consideration given plus transaction costs. [IAS 38.8, 27] Like IFRS Standards, the cost of an intangible asset acquired in a separate acquisition is the cash paid or the fair value of any other consideration given plus transactions costs. [805‑50‑30‑1 – 30‑2]
If payment is deferred beyond normal credit terms, then the cost of the asset is the cash price equivalent, which may be different from the cash flows discounted using a market rate of interest. [IAS 38.32]

IFRS vs US GAAP Intangible assets goodwill

If payment is deferred, then cost is recognised at the fair value of the consideration given, which may be measured as the present value of the future payments discounted using a market rate of interest or in some cases the fair value of the asset received; in general, we would not generally expect significant differences in measurement in practice. [835‑30‑25‑7 – 25-10]
The cost of an internally generated intangible asset includes the directly attributable expenditure of preparing the asset for its intended use. The principles discussed in respect of property, plant and equipment (see Property, plant and equipment) apply equally to the recognition of intangible assets. Expenditure on training activities, identified inefficiencies and initial operating losses is expensed as it is incurred. [IAS 38.27–30, 66–67]

IFRS vs US GAAP Intangible assets goodwill

Unlike IFRS Standards, internally developed intangible assets are recognised only if a specific Codification subtopic requires their recognition – e.g. software developed for internal use, software developed for sale to third parties, and motion picture
films. Such assets are initially recognised by accumulating costs incurred after the capitalisation criteria are met; however, the capitalisation criteria differ for each subtopic and they differ from IFRS Standards (see below). Like IFRS Standards, expenditure on training activities, clearly identified inefficiencies and initial operating losses is expensed as it is incurred. [350‑30‑30‑1, 350‑40‑25, 926-20-25]
The cost of an intangible asset acquired in a business combination is its fair value. [IFRS 3.18, IAS 38.33] Like IFRS Standards, intangible assets acquired in a business combination are initially recognised at fair value. [805‑20‑30‑1]
An intangible asset acquired for defensive purposes rather than for active use may also meet the above recognition criteria. Like IFRS Standards, an intangible asset acquired for defensive purposes rather than for active use may also meet the above recognition criteria. [350‑30‑25‑5A]

IFRS Research and development

Research’ is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. ‘Development’ is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use. Development does not include the maintenance or enhancement of ongoing operations. [IAS 38.8]

IFRS vs US GAAP Intangible assets goodwill

US GAAP Research and development

‘Research’ is a planned search or critical investigation aimed at the discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service or a new process or technique or in bringing about a significant
improvement to an existing product, service, process or technique. ‘Development’ is the translation of research findings or other knowledge into a plan or design for a new product, service, process or technique, whether intended for sale or for use. Because the precise language under US GAAP differs from IFRS Standards, it is possible that differences may arise in practice. [730‑10‑20]

Research costs are generally expensed as they are incurred. [IAS 38.54] Like IFRS Standards, research costs are generally expensed as they are incurred. [730‑10‑25‑1]
If an internally generated intangible asset arises from the development phase of a project, then directly attributable expenditure is capitalised from the date on which the entity is able to demonstrate:
  • the technical feasibility of completing the intangible asset so that it will be available for use or sale;
  • its intention to complete the intangible asset and use or sell it;
  • its ability to use or sell the intangible asset;
  • how the intangible asset will generate probable future economic benefits;
  • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
  • its ability to measure reliably the expenditure attributable to the intangible asset during its development. [IAS 38.57]
Unlike IFRS Standards, with the exception of certain internally developed computer software and direct-response advertising costs associated with acquiring or renewing insurance contracts, all other internally generated development costs are expensed as they are incurred. [350-40-25, 730‑10‑25-1, 25‑3, 944-30-25-1AA]
IFRS vs US GAAP Intangible assets goodwillIFRS vs US GAAP Intangible assets goodwillIFRS vs US GAAP Intangible assets goodwillIFRS vs US GAAP Intangible assets goodwillIFRS vs US GAAP Intangible assets goodwillIFRS vs US GAAP Intangible assets goodwill
In-process research and development (R&D) acquired in a business combination is recognised initially at fair value. Subsequent to initial recognition, the intangible asset is accounted for following the general principles outlined in this chapter. [IAS 38.33–34]

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

Like IFRS Standards, in-process research and development (R&D) acquired in a  business combination is recognised initially at fair value. Unlike IFRS Standards, subsequent to initial recognition the intangible asset is classified as indefinite-
lived (regardless of whether it has an alternative future use) until the completion or abandonment of the associated R&D efforts, and is subject to annual impairment testing during the period over which these assets are considered indefinite-lived.
All costs incurred to complete the project are expensed as they are incurred, unlike IFRS Standards. [350‑30‑35‑17A, 805‑20‑30‑1]IFRS vs US GAAP Intangible assets goodwill
In-process R&D acquired in a separate acquisition is recognised and initially measured at cost. In-process R&D acquired with a group of assets that does not constitute a business is recognised and measured based on its relative fair value in relation to the cost of the group of assets as a whole. [IFRS 3.2(b), IAS 38.8, 24, 26]

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

In-process R&D acquired in a separate acquisition or with a group of assets that does not constitute a business is recognised as an asset only if it has an alternative future use, in which case it is initially measured at cost or based on its relative fair value in relation to the cost of the group of assets as a whole, like IFRS Standards. In-process R&D acquired outside a business combination that does not have an alternative future use is measured at cost or based on its relative fair value in relation to the cost of the group of assets as a whole, and expensed at the time of acquisition, unlike IFRS Standards. [730‑10-25‑2(c)]
Expenditure on internally generated intangible assets such as brands, mastheads, publishing titles, customer lists and similar items is not capitalised. [IAS 38.63] Like IFRS Standards, expenditure on internally generated intangible assets such as brands, mastheads, publishing titles, customer lists and similar items is not capitalised. [350-20-25-3, 805‑20‑25‑4]
There are no special requirements for R&D activities that are funded by other parties.

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill

Unlike IFRS Standards, there are special requirements for arrangements under which the R&D activities of an entity are funded by other parties, which may give rise to differences in practice. The R&D costs are accounted for following the general
principles outlined above (generally expensed as they are incurred). To the extent that the entity has an obligation to repay the funding party, regardless of the outcome of the R&D activities, it recognises a liability; a repayment obligation may be explicit or implicit. Factors that lead to a presumption that the entity doing the research will pay back the funding party include:
  • an indicated intent to repay;
  • severe economic consequences for non-payment;
  • a significant related party relationship; or
  • the project is essentially complete when the arrangement is entered into; the apparent absence of an ability to repay the funding party does not overcome this presumption. [730‑10‑25‑1, 730‑20‑25]

IFRS Software developed for sale

There are no special requirements for software developed for sale. The costs of such software are accounted for following the general principles for internally generated intangible assets. [IAS 38.57]

IFRS VS US GAAP Software developed for sale
IFRS VS US GAAP Software developed for sale
IFRS VS US GAAP Software developed for sale
IFRS VS US GAAP Software developed for sale
IFRS VS US GAAP Software developed for sale
IFRS VS US GAAP Software developed for sale
IFRS VS US GAAP Software developed for sale
IFRS VS US GAAP Software developed for sale

US GAAP Software developed for sale

Unlike IFRS Standards, there are special requirements for software developed to be sold. The costs incurred internally in creating a computer software product to be sold, leased or otherwise marketed as a separate product or as part of a product or process are R&D costs that are expensed as they are incurred until technological feasibility has been established for the product. ‘Technological feasibility’ is established on completion of a detailed programme and product design or, in the absence of the former, completion of a working model whose consistency with the product design has been confirmed through testing. Thereafter, all software development costs incurred up to the point of general release of the product to customers are capitalised and reported subsequently at the lower of amortised cost and net realisable value.

Although the technological feasibility capitalisation threshold is similar to the general recognition principles for internally generated intangible assets under IFRS Standards, because the precise language under US GAAP differs from IFRS Standards, differences may arise in practice. [985‑20‑25‑1 – 25‑3, 35‑4]

IFRS Internal-use software

There are no special requirements for the development of internal-use software. The costs of such software are accounted for under the general principles for internally generated intangible assets or, in the case of purchased software, following the general requirements for intangible assets. [IAS 38.57]

IFRS VS US GAAP Internal-use software
IFRS VS US GAAP Internal-use software
IFRS VS US GAAP Internal-use software
IFRS VS US GAAP Internal-use software
IFRS VS US GAAP Internal-use software
IFRS VS US GAAP Internal-use software
IFRS VS US GAAP Internal-use software
IFRS VS US GAAP Internal-use software

IFRS Internal-use software

US GAAP Internal-use software

Unlike IFRS Standards, there are special requirements for the development of internal-use software. The costs incurred for such software that is acquired, internally developed or modified solely to meet the entity’s internal needs are capitalised depending on the stage of development. The stages of software development are the preliminary project stage, application development stage and post-implementation/operation stage. Costs incurred during the preliminary project stage and the post-implementation/operation stage are expensed as they are incurred. [350‑40‑25‑1 – 25‑2, 25‑6]

Costs incurred in the application development stage that are capitalised include only:

  • the external direct costs of materials and services consumed in developing or obtaining internal-use software;
  • payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use software project; and
  • interest (borrowing costs) incurred during development (see chapter 4.6). [350‑40‑30‑1]

General administrative and overhead costs are expensed as they are incurred. [350‑40‑30‑3]

The application development stage, which is necessary to commence capitalising costs under US GAAP, will often occur sooner than the date on which the criteria for capitalising development costs under IFRS Standards are met. Therefore, both the timing of commencing capitalisation and the amounts capitalised are likely to differ from IFRS Standards.

IFRS Website development costs

Costs associated with websites developed for advertising or promotional purposes are expensed as they are incurred. In respect of other websites, costs incurred during the planning stage (pre-development) are expensed when they are incurred; costs incurred during the application and infrastructure development stage, the graphical design stage and the content development stage are capitalised if the criteria for capitalising development costs are met (see above). The costs of developing content for advertising or promotional purposes are expensed as they are incurred. [SIC‑32.8–9]

US GAAP Website development costs

Unlike IFRS Standards, website development costs are subject to the same general capitalisation criteria as internal-use software, which differs from the general capitalisation criteria for internally developed intangible assets under IFRS Standards. Therefore, costs incurred during the application development stage are capitalised. US GAAP provides detailed guidance on the activities that are deemed to be within the application development stage for website development. Unlike IFRS Standards, US GAAP does not provide guidance on the accounting for the costs of developing content for websites, and therefore differences from IFRS Standards may arise in
practice. [350‑50‑25‑3 – 25‑13]

Cloud computing

An entity entering into a cloud computing arrangement assesses whether it receives a software asset or a service over the contract term. It receives a software asset if:

  • the arrangement contains a software lease under the guidance in the leases standard (see chapter 5.1); or
  • it otherwise obtains control of the software under the guidance in the standard on intangible assets (see Leases). [IU 03-19]

If the arrangement does not contain a software lease or provide a software intangible asset, then it is a service contract and the entity expenses the cost as the services are received. [IU 03-19]

Cloud computing

Unlike IFRS Standards, there are specific criteria for determining whether a cloud computing arrangement includes both a licence of software and services or just services (see forthcoming requirements).

  • To the extent that the arrangement includes a licence of software, the customer capitalises the fee attributable to the licence when the criteria for the capitalisation of internal-use software are met (see above).
  • To the extent that the arrangement does not include a licence of software, the customer accounts for the arrangement as a service contract and expenses the cost as the services are received. [350-40-15-4A]

IFRS Goodwill

Goodwill arising in a business combination is capitalised (see Business combinations). [IFRS 3.32]

US GAAP Goodwill

Like IFRS Standards, goodwill arising in a business combination is capitalised (see Business combinations). [805‑30‑30‑1]

Goodwill may include an amount that is attributable to NCI if an entity elects to initially measure such interests at fair value (see Business combinations). [IFRS 3.19] Unlike IFRS Standards, goodwill always includes an amount that is attributable to NCI because NCI are initially measured at fair value (see Business combinations). [805‑20‑30‑1]

IFRS Items that are expensed as they are incurred

Expenditure associated with the following costs is expensed as it is incurred, regardless of whether the general criteria for asset recognition appear to be met:

  • internally generated goodwill;
  • start-up costs, unless they qualify for recognition as part of the cost of property,
  • plant and equipment (see Property, plant and equipment);
  • training activities;
  • advertising and promotional activities (see below); and
  • relocating or reorganising part or all of an entity. [IAS 38.48, 69]

US GAAP Items that are expensed as they are incurred

Like IFRS Standards, expenditure associated with the following costs is expensed as it is incurred, regardless of whether the general criteria for asset recognition appear to be met:

  • internally generated goodwill;
  • start-up costs, unless they qualify for recognition as part of the cost of property, plant and equipment (see property, plant and equipment);
  • training activities; and
  • relocating or reorganising part or all of an entity. [350‑20‑25‑3, 350‑40‑25‑4, 25‑6, 720‑15‑15‑4(f), 25‑1]

 

Expenditure on advertising and promotional activities is recognised as an expense when the benefit of those goods or services is available to the entity. This requirement does not prevent the recognition of an asset for prepaid expenses, but a prepayment is recognised only for payments made in advance of the receipt of the corresponding goods or services. [IAS 38.69–70, IU 09-17] Unlike IFRS Standards, direct-response advertising expenditure is capitalised if certain criteria are met (see below). Advertising production costs may be expensed as they are incurred or capitalised until the first time that the advertisement is shown, at which time the amount is expensed, unlike IFRS Standards; other advertising and promotional activities are expensed as they are incurred, like IFRS Standards. [720‑35‑25‑1]

IFRS Amortisation

Acquired goodwill is not amortised, but instead is subject to impairment testing at least annually (see impairment of non-financial assets). [IAS 36.10]

IFRS VS US GAAP Amortisation

US GAAP Amortisation

Like IFRS Standards, acquired goodwill is not amortised, but instead is subject to impairment testing at least annually; the method of impairment testing differs in certain respects from IFRS Standards (see impairment of non-financial assets). [350‑20‑35‑3]

The useful life of intangible assets other than goodwill is either finite or indefinite. Intangible assets with indefinite useful lives are not amortised, but instead are subject to impairment testing at least annually (see impairment of non-financial assets). [IAS 36.10, 38.89, 107–110]
IFRS VS US GAAP Amortisation
Like IFRS Standards, the useful life of intangible assets other than goodwill is either finite or indefinite. Like IFRS Standards, intangible assets with indefinite useful lives are not amortised, but instead are subject to impairment testing at least annually; the method of impairment testing differs in certain respects from IFRS Standards (see impairment of non-financial assets). [350‑30‑35‑1]
An intangible asset has an ‘indefinite’ useful life if, based on an analysis of all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. [IAS 38.88–90]
IFRS VS US GAAP Amortisation
IFRS VS US GAAP Amortisation
Like IFRS Standards, an intangible asset has an ‘indefinite’ useful life if, based on an analysis of all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. However, because the specific criteria for considering whether an intangible asset is indefinite-lived under IFRS Standards and US GAAP differ (see below), differences may arise in practice. [350‑30‑35‑4]
An intangible asset with a finite life is amortised on a systematic basis over its useful life. [IAS 38.97]
IFRS VS US GAAP Amortisation
IFRS VS US GAAP Amortisation
Like IFRS Standards, an intangible asset with a finite life is amortised on a systematic basis over its useful life. However, in some situations US GAAP specifies the amortisation method (e.g. proportionate to revenues), unlike IFRS Standards. [350‑30‑35‑6]
IFRS VS US GAAP Amortisation
There is no specific guidance on the amortisation of defensive intangible assets (see above) and the general principles apply. Accordingly, such assets are not written off immediately but are amortised over their useful lives and tested for impairment within the relevant CGU (see impairment of non-financial assets).
IFRS VS US GAAP Amortisation
Defensive intangible assets are not written off immediately but are amortised over their useful lives, which is the period over which the assets contribute directly or indirectly to the entity’s cash flows, and tested for impairment within the asset group – e.g. the entity’s other assets supported by the defensive intangible assets. Because IFRS Standards have no explicit guidance on the accounting for defensive intangible assets, differences may arise in practice. [350‑30‑35‑5A, 35‑14]s
A change in useful life is accounted for prospectively as a change in accounting estimate (see Accounting policies, errors and estimates). The amortisable amount of an intangible asset with a finite useful life is determined after deducting its residual value. The residual value of an intangible asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were of the age and in the condition expected at the end of its useful life. [IAS 38.8, 101, 104] Like IFRS Standards, a change in useful life is accounted for prospectively as a change in accounting estimate (see Accounting policies, errors and estimates). Like IFRS Standards, the amortisable amount of an intangible asset with a finite useful life is determined after deducting its residual value. Residual value is the estimated fair value of an intangible asset at the end of its useful life to an entity, less any disposal costs; although this wording differs from IFRS Standards, we would not generally expect significant differences in practice. [350‑30‑35-8 – 35‑10, 35‑13, 35‑17]
The residual value of an intangible asset with a finite useful life is assumed to be zero unless a third party has committed to buy the asset at the end of its useful life or there is an active market from which a residual value can be obtained and it is probable that such a market will exist at the end of the asset’s useful life. [IAS 38.100] Like IFRS Standards, the residual value of an intangible asset with a finite useful life is assumed to be zero unless a third party has committed to buy the asset at the end of its useful life or there is an exchange transaction in an existing market and that market is expected to exist at the end of the asset’s useful life. [350‑30‑35‑8]
The residual value of an intangible asset is reviewed at least at each annual reporting date. A change in the asset’s residual value is accounted for prospectively as a change in accounting estimate (see Accounting policies, errors and estimates). [IAS 38.102] The residual value of an intangible asset is reviewed each reporting period, which is more frequent than IFRS Standards for an entity preparing interim reports. Like IFRS Standards, a change in the asset’s residual value is accounted for prospectively as a change in accounting estimate (see Accounting policies, errors and estimates). [350‑30‑35‑8 – 35-9]
If control of an intangible asset is based on legal rights that have been granted for a finite period, then the useful life cannot exceed that period unless:
  • the legal rights are renewable;
  • there is evidence to support the conclusion that they will be renewed; and
  • the cost of renewal of such rights is not significant. [IAS 38.94–96]

There is no further guidance in IFRS Standards on determining the useful life of an intangible asset.

The useful life of an intangible asset is based on an analysis of all relevant factors, including:
  • the expected use of the asset by the entity;
  • the expected useful life of another asset or group of assets to which the intangible asset may relate;
  • legal, regulatory or contractual requirements that may limit the life;
  • the entity’s own historical experience in renewing or extending similar arrangements, consistent with the intended use of the asset by the entity, regardless of whether those arrangements have explicit renewal or extension terms. In the absence of historical experience, the entity considers the assumptions that market participants would use about renewal or extension terms,
    consistent with the highest and best use of the asset by market participants, adjusted for entity-specific factors;
  • the effects of obsolescence, demand, competition or other economic factors; and
  • the level of maintenance expenditure required to obtain the expected future cash flows from the asset. [350‑30‑35‑3]

These factors, although they are consistent with the requirements of IFRS Standards, are more detailed and therefore differences may arise in practice.

An entity reviews the classification in each annual reporting period to decide whether the assessment made about the useful life of an intangible asset as indefinite or finite is still appropriate. Any such change is accounted for prospectively as a change in accounting estimate (see Accounting policies, errors and estimates). [IAS 38.109] An entity reviews the classification each reporting period to decide whether the assessment made about the useful life of an intangible asset as indefinite or finite is still appropriate; this is more frequent than IFRS Standards for an entity preparing interim reports. If there is a change in the assessment of the useful life of an intangible asset from indefinite to finite or vice versa, then that change is accounted for prospectively as a change in accounting estimate, like IFRS Standards (see Accounting policies, errors and estimates). [350‑30‑35-9 – 35-10, 35-13, 35-16 – 35‑17]
The method of amortisation, which is reviewed at each annual reporting date, reflects the pattern of consumption of the economic benefits. If the pattern in which the asset’s economic benefits are consumed cannot be determined reliably, then the straight-line method is used. [IAS 38.97, 104] Unlike IFRS Standards, there is no requirement to review the method of amortisation at each annual reporting date; rather, it is reviewed whenever events or changes in circumstances indicate that the current estimate is no longer appropriate. Like IFRS Standards, the method of amortisation reflects the pattern of consumption of the economic benefits. Like IFRS Standards, if that pattern cannot be determined reliably, then the straight‑line method is used. [350‑30‑35‑6, 35‑9]
An entity is permitted to use a revenue-based method of amortisation only when:
  • it can demonstrate that revenue and the consumption of the economic benefits of the intangible asset are ‘highly correlated’; or
  • the intangible asset is expressed as a measure of revenue. [IAS 38.98A, 98C]
The ‘highly correlated’ test is a high threshold to be met before applying such an approach. In our view, an entity cannot simply assume that the consumption of economic benefits is based on revenue; it should be able to demonstrate the high correlation.

Unlike IFRS Standards, US GAAP does not place explicit restrictions on a revenue-based method of amortisation; however, in practice such an approach is generally not appropriate because it would not reflect the pattern of consumption of the economic benefits. As an exception, for software developed with an intent to sell or license, amortisation on the basis of revenues is used such that the annual amortisation charge is the greater of the amounts determined on the following bases:

  • the ratio that current gross revenue for a product bears to the total current and anticipated future gross revenues for that product; and
  • straight-line amortisation over the remaining estimated economic life of the product, including the current period. [350‑30‑35‑6, 985‑20‑35‑1]
A change in the method of amortisation is accounted for prospectively as a change in accounting estimate (see Accounting policies, errors and estimates). There is no explicit requirement for the change in estimate to be justified by its preferability in the same way as a voluntary change in accounting policy. [IAS 38.104] Like IFRS Standards, a change in the method of amortisation is accounted for prospectively as a change in accounting estimate. However, unlike IFRS Standards, there is an explicit requirement that the change be justified by its ‘preferability’ (see Accounting policies, errors and estimates). [250‑10‑45‑18]
The amortisation of intangible assets with finite lives begins when the intangible asset is available for use – i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management – which may be before the asset is brought into use. [IAS 38.97] Like IFRS Standards, the amortisation of intangible assets with finite lives begins when the intangible asset is available for use, which may be before the asset is brought into use. [350‑30‑35‑2]
Amortisation ceases at the earlier of the date when the asset is classified as held-for-sale (see chapter 5.4) or is derecognised. [IAS 38.97] Like IFRS Standards, amortisation ceases at the earlier of the date when the asset is classified as held-for-sale (see chapter 5.4) or is derecognised. [350‑30-35-6, 35-9]

IFRS Subsequent expenditure

Subsequent expenditure to add to, replace part of or service an intangible asset is recognised as part of the cost of the intangible asset if an entity can demonstrate that the items meet:

  • the definition of an intangible asset (see above); and
  • the general recognition criteria for intangible assets (see above). [IAS 38.18]

US GAAP Subsequent expenditure

Under US GAAP, expenditure that is incurred subsequent to the completion or acquisition of an intangible asset is not capitalised unless it can be demonstrated that the expenditure increases the utility of the asset. Although this wording differs from IFRS Standards, we would not generally expect significant differences in practice. [350‑30‑25‑1 – 25‑3, TQA 2260.03]

The general recognition criteria for internally generated intangible assets are applied to subsequent expenditure on in-process R&D projects acquired separately or in a business combination. Therefore, capitalisation after initial recognition is limited to development costs that meet the recognition criteria (see above). [IAS 38.42, 54–62] Unlike IFRS Standards, subsequent in-process R&D expenditure is generally expensed as incurred unless it qualifies for capitalisation under transaction-specific guidance such as for internal-use software (see above). [350‑40‑35‑1, 35‑9]

IFRS Revaluations

Intangible assets may be revalued to fair value only when there is an active market, which requires a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis (see Fair value measurement). [IAS 38.75]

US GAAP Revaluations

Unlike IFRS Standards, entities are not permitted to use the revaluation model under US GAAP. [ARB 43.9B.1]

 

If an intangible asset is revalued, then fair value is measured in accordance with the standard on fair value measurement (see Fair value measurement).

If an intangible asset is revalued, then all intangible assets in that class are revalued to the extent that there is an active market for such assets, and the revaluations are kept up to date. [IAS 38.72]

Most of the issues related to the accounting for revaluations of intangible assets are similar to those in respect of property, plant and equipment (see property, plant and equipment). [IAS 8.16–17, 38.80, 87]

IFRS VS US GAAP Revaluations
IFRS VS US GAAP Revaluations

 

 

 

 

 

 

IFRS VS US GAAP Revaluations
IFRS VS US GAAP Revaluations

IFRS Retirements and disposals

When an operation to which goodwill relates is disposed of, goodwill allocated to that operation via CGUs is included in calculating the gain or loss on disposal. [IAS 36.86]

IFRS VS US GAAP Revaluations
IFRS VS US GAAP Revaluations
IFRS VS US GAAP Revaluations

US GAAP Retirements and disposals

Like IFRS Standards, when a portion of a reporting unit is disposed of, goodwill of that reporting unit is included in the carrying amount of the portion of the reporting unit in calculating the gain or loss on disposal. However, unlike IFRS Standards, this requirement applies only if the reporting unit meets the definition of a business (see Business combinations), and differences may arise between a reporting unit and a CGU under IFRS Standards (see impairment of nonfinancial assets). [350‑20‑40-1 – 40-2]

The amount of goodwill included in the carrying amount of the operation being disposed of is based on the relative values of the operation to be disposed of and the portion of the CGU that will be retained, unless the entity can demonstrate that another allocation method is preferable. [IAS 36.86]
IFRS VS US GAAP Revaluations
IFRS VS US GAAP Revaluations
Unlike IFRS Standards, the amount of goodwill included in the carrying amount of the operation being disposed of is based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained; an exception
arises only if a prior acquisition has not yet been integrated into the reporting unit, unlike IFRS Standards. If the operation being disposed of does not constitute a business, then goodwill is not included in the carrying amount of the operation being disposed of, unlike IFRS Standards. Additionally, differences may arise because of a difference between a reporting unit under US GAAP and a CGU under IFRS Standards (see impairment of nonfinancial assets). [350‑20‑40-1 – 40-7]
When an intangible asset is disposed of or when no further economic benefits are expected from its use, it is derecognised. If an intangible asset is disposed of as part of a sale-and-leaseback transaction, then the requirements in the leases standard apply (see Leases). Like IFRS Standards, when an intangible asset is disposed of or when no further economic benefits are expected from its use, it is derecognised. Unlike IFRS Standards, intangible assets are not in the scope of the leases Codification Topic.
The gain or loss on derecognition is the difference between:
  • any net proceeds received; and
  • the carrying amount of the asset. [IAS 38.113]
Like IFRS Standards, when an intangible asset is derecognised, a gain or loss is recognised. The gain or loss is determined as the difference between:
  • the consideration received, which is the transaction price determined under the revenue Codification Topic (see Revenue from contracts with customers); and
  • the carrying amount of the asset. [350‑10‑40-1, 610-20-32-2]
Any attributable revaluation surplus may be transferred to retained earnings, but is not recognised in profit or loss. [IAS 38.87] Unlike IFRS Standards, the revaluation model is not permitted and therefore no revaluation surplus exists.
If an entity recognises the cost of replacing part of an intangible asset, then it derecognises the carrying amount of the replaced part. [IAS 38.115] Unlike IFRS Standards, component accounting is not required under US GAAP; therefore, it is possible for a replacement part to be capitalised without derecognising the part replaced, so differences from IFRS Standards may arise in practice.
Amortisation of an intangible asset with a finite useful life does not cease when the intangible asset is no longer used, unless the asset has been fully amortised or is classified as held-for-sale (see Non-current assets held for sale and discontinued operations). [IAS 38.117] Like IFRS Standards, amortisation of an intangible asset with a finite useful life does not cease when the intangible asset is no longer used, unless the asset has been fully amortised or is classified as held-for-sale (see Long-lived assets held for sale and discontinued operations). [350‑30‑35‑10]
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IFRS vs US GAAP Intangible assets goodwill

IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill IFRS vs US GAAP Intangible assets goodwill

 

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