IFRS for SMEs — U.S. GAAP Comparison Wiki

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Intangible Assets other than Goodwill

SME Par.IFRS SMEU.S. GAAP
Scope of this section
18.1 This section applies to accounting for all intangible assets other than goodwill (see Section 19 Business Combinations and Goodwill) and intangible assets held by an entity for sale in the ordinary course of business (see Section 13 Inventories and Section 23 Revenue).  
18.2 An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when:
  1. it is separable, ie 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
  2. it 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.
 Same.
18.3 Intangible assets do not include:
  1. financial assets, or
  2. mineral rights and mineral reserves, such as oil, natural gas and similar non-regenerative resources.
 Same.
Recognition
 General principle for recognising intangible assets
18.4 An entity shall apply the recognition criteria in paragraph 2.27 in determining whether to recognise an intangible asset. Therefore, the entity shall recognise an intangible asset as an asset if, and only if:
  1. it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity;
  2. the cost or value of the asset can be measured reliably; and
  3. the asset does not result from expenditure incurred internally on an intangible item.
 Same with regard to (a) and (b). However, internally generated intangible assets are recognized if (i) they are specifically identifiable, (ii) they have determinate lives, and (iii) are not inherent in a continuing business and related to an entity as a whole. Specialized industry practices also exist, e.g., for the film and record and music industries.
18.5 An entity shall assess the probability of expected future economic benefits using reasonable and supportable assumptions that represent management’s best estimate of the economic conditions that will exist over the useful life of the asset.  
18.6 An entity uses judgement to assess the degree of certainty attached to the flow of future economic benefits that are attributable to the use of the asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence.  
18.7 The probability recognition criterion in paragraph 18.4(a) is always considered satisfied for intangible assets that are separately acquired. Same.
 Acquisition as part of a business combination
18.8 An intangible asset acquired in a business combination is normally recognised as an asset because its fair value can be measured with sufficient reliability. However, an intangible asset acquired in a business combination is not recognised when it arises from legal or other contractual rights and its fair value cannot be measured reliably because the asset either
  1. is not separable from goodwill, or
  2. is separable from goodwill but there is no history or evidence of exchange transactions for the same or similar assets, and otherwise estimating fair value would be dependent on immeasurable variables.
 Unlike IFRS SMEs, an intangible asset acquired in a business combination is recognized if it arises from contractual or other legal rights, regardless of whether those rights are transferrable or separable from the acquired entity or from other rights and obligations. Unlike IFRS SMEs, there is no requirement for a history or evidence of exchange transactions for the same or similar assets.

Like IFRS SMEs, in-process research and development acquired in a business combination is recognized initially at fair value. However, unlike IFRS SMEs, in-process research and development acquired in a business combination is charged to expense immediately after the acquisition unless the asset has an alternative future use, either in other research and development projects or otherwise.
Initial measurement
18.9 An entity shall measure an intangible asset initially at cost. Unlike IFRS SMEs, acquired intangible assets are measured initially at fair value. However, for identifiable assets acquired in a separate transaction, fair value is generally based on the fair value of any consideration given, like IFRS SMEs.
 Separate acquisition
18.10 The cost of a separately acquired intangible asset comprises:
  1. its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, and
  2. any directly attributable cost of preparing the asset for its intended use.
 See 18.9.
 Acquisition as part of a business combination
18.11 If an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date. Same.
 Acquisition by way of a government grant
18.12 If an intangible asset is acquired by way of a government grant, the cost of that intangible asset is its fair value at the date the grant is received or receivable in accordance with Section 24 Government Grants. Like IFRS SMEs, contributed nonmonetary assets are recognized at fair value if fair value can be measured reliably. However, practice varies with respect to emissions allowances.
 Exchanges of assets
18.13 An intangible asset may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. An entity shall measure the cost of such an intangible asset at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. In that case, the asset’s cost is measured at the carrying amount of the asset given up. Same.
 Internally generated intangible assets
18.14 An entity shall recognise expenditure incurred internally on an intangible item, including all expenditure for both research and development activities, as an expense when it is incurred unless it forms part of the cost of another asset that meets the recognition criteria in this IFRS. Unlike IFRS SMEs, internally generated intangible assets are recognized if (i) they are specifically identifiable, (ii) they have determinate lives, and (iii) are not inherent in a continuing business and related to an entity as a whole.

Unlike IFRS SMEs, certain costs of computer software developed internally for internal use and costs of developing certain direct-response advertising are capitalized.
18.15 As examples of applying the preceding paragraph, an entity shall recognise expenditure on the following items as an expense and shall not recognise such expenditure as intangible assets:
  1. internally generated brands, logos, publishing titles, customer lists and items similar in substance.
  2. start-up activities (ie start-up costs), which include establishment costs such as legal and secretarial costs incurred in establishing a legal entity, expenditure to open a new facility or business (ie pre-opening costs) and expenditure for starting new operations or launching new products or processes (ie pre-operating costs).
  3. training activities.
  4. advertising and promotional activities.
  5. relocating or reorganising part or all of an entity.
  6. internally generated goodwill.
  1. Internally generated brands, logos, and customer lists likely would not meet the U.S. GAAP criteria for capitalization. However, internally generated publishing titles may very well meet the criteria for capitalization.
  2. Same.
  3. Same.
  4. Unlike IFRS SMEs, costs of developing certain direct-response advertising are capitalized.
  5. Same.
  6. Same.
18.16 Paragraph 18.15 does not preclude recognising a prepayment as an asset when payment for goods or services has been made in advance of the delivery of the goods or the rendering of the services.  
Past expenses not to be recognised as an asset
18.17 Expenditure on an intangible item that was initially recognised as an expense shall not be recognised at a later date as part of the cost of an asset.  
Measurement after recognition
18.18 An entity shall measure intangible assets at cost less any accumulated amortisation and any accumulated impairment losses. The requirements for amortisation are set out in this section. The requirements for recognition of impairment are set out in Section 27 Impairment of Assets. Intangible assets with finite useful lives are amortized over their useful lives, like IFRS SMEs. Unlike IFRS SMEs, however, intangible assets whose useful lives are indefinite are not amortized until their useful lives are determined to be no longer indefinite. All intangible assets are subject to review for impairment; however, assets not subject to amortization must be tested for impairment at least annually.
Amortisation over useful life
18.19 For the purpose of this IFRS, all intangible assets shall be considered to have a finite useful life. The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to support renewal by the entity without significant cost. Unlike IFRS SMEs, there is no presumption that all intangible assets have finite useful lives.

The useful life of an intangible asset that arises from contractual or other legal rights is subject to limitations similar to those in IFRS SMEs. However, wording differences (“without significant cost” versus “without material modifications of the existing terms and conditions”) might result in differences in practice.
18.20 If an entity is unable to make a reliable estimate of the useful life of an intangible asset, the life shall be presumed to be ten years. Under U.S. GAAP, an intangible asset with a finite useful life is amortized over the best estimate of its useful life. In practice, the inability to make a reliable estimate of the useful life of an intangible asset may be equivalent to a determination that the asset has an indefinite useful life, in which case the asset is not amortized, unlike IFRS SMEs.
 Amortisation period and amortisation method
18.21 An entity shall allocate the depreciable amount of an intangible asset on a systematic basis over its useful life. The amortisation charge for each period shall be recognised as an expense, unless another section of this IFRS requires the cost to be recognised as part of the cost of an asset such as inventories or property, plant and equipment. Same.
18.22 Amortisation begins when the intangible asset is available for use, ie when it is in the location and condition necessary for it to be usable in the manner intended by management. Amortisation ceases when the asset is derecognised. The entity shall choose an amortisation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. If the entity cannot determine that pattern reliably, it shall use the straight-line method. Unlike IFRS SMEs, amortization ceases if an intangible asset is determined to have an indefinite useful life. Furthermore, specialized industry practices, e.g., for the film industry, may specify amortization methods. Otherwise, same.
 Residual value
18.23 An entity shall assume that the residual value of an intangible asset is zero unless:
  1. there is a commitment by a third party to purchase the asset at the end of its useful life, or
  2. there is an active market for the asset and:
    1. residual value can be determined by reference to that market, and
    2. it is probable that such a market will exist at the end of the asset’s useful life.
 Same.
 Review of amortisation period and amortisation method
18.24 Factors such as a change in how an intangible asset is used, technological advancement, and changes in market prices may indicate that the residual value or useful life of an intangible asset has changed since the most recent annual reporting date. If such indicators are present, an entity shall review its previous estimates and, if current expectations differ, amend the residual value, amortisation method or useful life. The entity shall account for the change in residual value, amortisation method or useful life as a change in an accounting estimate in accordance with paragraphs 10.15–10.18. Unlike IFRS SMEs, the amortization period must be reviewed each reporting period, not just when indicators that the useful life of the asset may have changed are present.
Recoverability of the carrying amount—impairment losses
18.25 To determine whether an intangible asset is impaired, an entity shall apply Section 27. That section explains when and how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises or reverses an impairment loss. See Section 27.
Retirements and disposals
18.26 An entity shall derecognise an intangible asset, and shall recognise a gain or loss in profit or loss:
  1. on disposal, or
  2. when no future economic benefits are expected from its use or disposal.
 Same.

 

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