Intangible assets
Also called intangible asset, intangibles, IAS 38, IP as an intangible asset, intangible asset accounting
Intangible assets are identifiable non-monetary assets without physical substance. This is the definition in IAS 38, the IFRS Accounting Standard on intangible assets (other frameworks, such as US GAAP, have their own rules), which says an asset is identifiable when it is separable, or when it arises from contractual or other legal rights1,2.
WIPO uses a broader economic sense: assets that lack physical substance yet have the potential to generate economic value, including IP rights such as patents, trademarks, designs, copyrights and trade secrets, and related assets such as software, data and brands3. See Intellectual property.
The accounting definition (IAS 38, IFRS)
IAS 38 is an IFRS Accounting Standard. It says that not all of the intangible resources it lists in paragraph 9 meet the definition: an item must show identifiability, control over a resource and the existence of future economic benefits (paragraph 10)2.
| Test | What IAS 38 says |
|---|---|
| Identifiability | An asset is identifiable if it is separable, meaning capable of being separated from the entity and sold, transferred, licensed, rented or exchanged, or if it arises from contractual or other legal rights, whether or not those rights are transferable or separable (paragraph 12). This distinguishes an intangible asset from goodwill (paragraph 11)2. |
| Control | An entity controls an asset if it has the power to obtain the future economic benefits flowing from the resource and to restrict the access of others to them. Control would normally stem from legal rights enforceable in a court of law, but legal enforceability is not a necessary condition (paragraph 13)2. |
| Future economic benefits | They may include revenue from the sale of products or services, cost savings, or other benefits from the entity's use of the asset. Use of intellectual property in a production process may reduce future production costs rather than increase revenues (paragraph 17)2. |
Meeting the definition is not enough. An intangible asset is recognized if, and only if, it is probable that the expected future economic benefits attributable to it will flow to the entity and its cost can be measured reliably (paragraph 21)2. The IFRS Foundation's summary lists computer software, licenses, trademarks, patents, films, copyrights and import quotas as examples1.
Bought, built in-house or acquired with a business
| Source of the item | Treatment under IAS 38 |
|---|---|
| Acquired separately | Measured initially at cost (paragraph 24). The price paid normally reflects expectations of future benefits, so the probability criterion is always considered satisfied. The cost of a separately acquired intangible asset can usually be measured reliably (paragraphs 25 and 26)2. |
| Internally generated, research phase | No intangible asset is recognized. Research expenditure is expensed when incurred (paragraph 54)2. |
| Internally generated, development phase | Recognized if, and only if, the entity can demonstrate all six criteria in paragraph 57, from technical feasibility and intention to complete, through ability to use or sell, probable future benefits and adequate resources, to reliable measurement of the expenditure2. |
| Internally generated brands, mastheads, publishing titles, customer lists | Not recognized as intangible assets, because the expenditure cannot be distinguished from the cost of developing the business as a whole (paragraphs 63 and 64)2. |
| Acquired in a business combination | Measured at fair value at the acquisition date, which is its cost. The probability and reliable-measurement criteria are always considered satisfied (paragraph 33). The acquirer recognizes an intangible asset of the acquiree separately from goodwill, including an in-process research and development project that meets the definition, whether or not the acquiree had recognized it (paragraph 34). An item acquired in a business combination that cannot be recognized as an intangible asset forms part of the amount recognized as goodwill (paragraph 68(b))2. |
The cost of an internally generated intangible asset includes directly attributable costs such as materials and services used, employee benefits, fees to register a legal right, and amortization of patents and licenses used to generate the asset (paragraph 66)2. Selling, administrative and other general overhead is not a component unless it can be directly attributed to preparing the asset for use (paragraph 67)2.
IP as a class of intangible assets
IAS 38 names intellectual property and patents among the items that fall under its broad headings of intangible resources, together with items such as computer software, copyrights, customer lists and franchises (paragraph 9)2. WIPO lists patents, trademarks, designs, copyrights and trade secrets as IP rights that are intangible assets, alongside software, data and brands3.
Know-how can also meet the control test. IAS 38 says an entity controls the benefits of market and technical knowledge if, for example, the knowledge is protected by legal rights such as copyrights, a restraint of trade agreement (where permitted) or a legal duty on employees to maintain confidentiality (paragraph 14)2. See Trade secret.
WIPO notes that intangible assets are often invisible in corporate financial reports3. It also reports, in its World Intangible Investment Highlights, that investment in intangible assets crossed USD 10 trillion for the first time in 20253.
Measuring, valuing and financing intangibles
The accounting measure and a valuation are different things. Under IAS 38, intangible assets are measured initially at cost, and afterwards an entity usually measures an asset at cost less accumulated amortization, with fair value used in rare cases where it can be determined by reference to an active market. An asset with a finite useful life is amortized and tested for impairment, and one with an indefinite useful life is not amortized but is tested annually for impairment1.
WIPO says there is no single methodology for valuing intangible assets, and that a combination of approaches is often used. Value can usually be estimated from the future economic benefits associated with the asset, such as projected cash flows, and other common methods are the cost to repurchase or recreate the asset and comparison with transactions involving similar assets. The process involves professional judgment3. See Patent valuation.
On finance, WIPO says intangible assets have the potential to improve access to finance, because the most valuable assets of a business can be IP and related intangibles, and that standalone value can help recover losses in the case of default or business failure3.
Questions people ask
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Run FTO SearchIs a patent an intangible asset?
Yes in the broad sense, and under IAS 38 patents are named as examples1,2. Whether a patent is recognized on the balance sheet depends on the tests. A separately acquired patent is measured at cost and its probability criterion is always considered satisfied2. For an internally generated one, research expenditure is expensed and development expenditure is recognized only if all the paragraph 57 criteria are shown, and fees to register a legal right count as part of the cost2.
Are internally built brands and customer lists shown as assets?
Not under IAS 38. Internally generated brands, mastheads, publishing titles and customer lists are not recognized as intangible assets, because their expenditure cannot be distinguished from the cost of developing the business as a whole2.
What is the difference between intangible assets and intellectual property?
IP rights, such as patents, trademarks, designs, copyrights and trade secrets, are one class of intangible assets. Intangible assets also include related assets such as software, data, brands and organizational know-how3.
How is an intangible asset valued?
There is no single methodology, according to WIPO. A combination of approaches is often used, such as projected cash flows from the future economic benefits, the cost to repurchase or recreate the asset, and transactions involving similar assets3. Accounting measurement under IAS 38 is a separate exercise that starts from cost1.
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