This free, guided checker walks your finance team through the key decision points for IAS 38 Software and Intangible Assets. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
An intangible asset requires an identifiable resource the entity controls - the power to obtain its future economic benefits and to restrict others' access (IAS 38.13). On-premise or licensed software the entity can run and restrict others from generally supports control; a hosted arrangement that only conveys a right to access the supplier's software over the term generally does not. The trap is capitalising a SaaS subscription that is, in substance, a service contract.
The entity controls no identifiable software resource; account for the arrangement as a service unless another asset exists (IAS 38.13).
Official guidance: IFRS issued standards
Installed or licensed software that the entity can run and that restricts others access can meet the IAS 38.13 control criterion even when it is not separately sold. Hosted software the entity only accesses over the term, without control of the underlying code, is generally a service. Assess who controls the software resource and can obtain its future economic benefits.
Hosted software without control of the underlying asset is generally accounted for as a service (IAS 38.13).
Official guidance: IFRS issued standards
Recognise an intangible asset only when it is probable that expected future economic benefits will flow to the entity and its cost can be measured reliably (IAS 38.21). For separately acquired software, the probability criterion is always regarded as satisfied and the cost is usually reliably measurable from the purchase price (IAS 38.25-26). Internally generated software must instead pass the development-phase criteria before any cost is capitalised (IAS 38.57).
The recognition criteria are not met, so the cost is expensed when incurred (IAS 38.21).
Official guidance: IFRS issued standards
Separate the licence from recurring maintenance and support, which are services received and are expensed over the period they are provided (IAS 38.68-70). Capitalise the licence fee together with directly attributable implementation and configuration costs; treat a prepaid multi-year support fee as a prepayment released over its term. The trap is bundling ongoing support into the capitalised asset, which overstates the intangible and its amortisation base.
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Official guidance: IFRS issued standards
Research-phase and pre-development costs are expensed as incurred (IAS 38.54). Development costs are capitalised only from the date the entity can demonstrate all six criteria in IAS 38.57: technical feasibility, intention to complete, ability to use or sell, probable future economic benefits, availability of adequate resources, and ability to measure the cost reliably. The trap is retrospective capitalisation - expenditure already expensed cannot be reinstated once the criteria are later met (IAS 38.71).
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Official guidance: IFRS issued standards
Capitalise only costs directly attributable to creating the software and preparing it to operate as intended, such as materials, services consumed, and directly attributable employee costs (IAS 38.66). Expressly exclude training, administration and general overhead, start-up and pre-operating costs, and initial operating losses or inefficiencies (IAS 38.67, IAS 38.69). Test each cost line against the capitalisation policy; capitalising training or business-process redesign is a frequent error.
Remove costs that are not directly attributable to preparing the software for use from the asset (IAS 38.67).
Official guidance: IFRS issued standards
First determine whether the useful life is finite or indefinite; software is almost always finite (IAS 38.88). Where the asset arises from contractual or legal rights, the useful life cannot exceed their period, though it may be shorter if the entity expects to use the asset for less time because of obsolescence or technology change (IAS 38.94). Amortisation begins only when the asset is available for use - able to operate in the manner intended by management (IAS 38.97).
Do not begin amortisation until the software is available for use (IAS 38.97).
Official guidance: IFRS issued standards
If the IAS 38 recognition criteria were met in an earlier period but the cost was left in prepayments, that is a prior-period error, corrected retrospectively when material - restate the comparatives and reclassify the balance to an intangible asset (IAS 8.42, IAS 8.5). Assess materiality against both the omission and its effect on amortisation to date. The trap is treating the correction as a change in estimate and adjusting only the current period.
If the prior-period omission is material, restate comparatives to an intangible asset and begin amortisation (IAS 8.42, IAS 38.97). Recognise the intangible asset and amortise it over the supportable useful life, testing for impairment indicators (IAS 38.97, IAS 36.9).
Official guidance: IFRS issued standards
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