IAS 38 Intangible Assets: Key Insights for Dubai Businesses
In the dynamic business landscape of Dubai, companies increasingly rely on intangible assets such as patents, trademarks, and software to drive growth and maintain a competitive edge. Understanding how to account for these assets is crucial for compliance with International Financial Reporting Standards (IFRS), especially IAS 38, which governs the recognition, measurement, and disclosure of intangible assets.
What Are Intangible Assets According to IAS 38?
IAS 38 defines an intangible asset as an identifiable, non-monetary asset without physical substance. To qualify, an intangible asset must have three key attributes:
Identifiability: The asset must be separable (can be sold, transferred, or licensed) or arise from contractual or other legal rights.
Control: The entity must have the power to obtain future economic benefits from the asset.
Future Economic Benefits: The asset must be expected to generate revenues or reduce future costs for the company.
Scope of IAS 38 for Businesses in Dubai
IAS 38 applies to all intangible assets except those covered by other specific IFRS standards. This means Dubai-based companies must use IAS 38 for accounting unless the asset falls under the following categories:
Financial instruments (IAS 32, IFRS 9)
Exploration and evaluation of mineral resources (IFRS 6)
Goodwill acquired in a business combination (IFRS 3)
Leases of intangible assets (IFRS 16)
Deferred tax assets (IAS 12)
Employee benefits (IAS 19)
Insurance contracts (IFRS 17)
Non-current assets held for sale (IFRS 5)
Recognizing Intangible Assets in Dubai
An intangible asset is recognized in the financial statements only if:
Probable future economic benefits will flow to the entity.
The cost of the asset can be measured reliably.
Internally Generated Intangible Assets
IAS 38 distinguishes between two phases:
Research Phase: Costs are expensed as incurred because future economic benefits are uncertain.
Development Phase: Costs may be capitalized if all criteria are met, including technical feasibility, intention to complete, ability to use or sell, and reliable measurement of costs.
Note: Internally generated goodwill, brands, customer lists, and similar items are never recognized as assets.
Subsequent Measurement: Cost and Revaluation Models
After initial recognition, Dubai businesses can choose between two measurement models:
Cost Model: The asset is carried at cost less accumulated amortization and impairment losses.
Revaluation Model: The asset is carried at fair value, less subsequent amortization and impairment. This model is only used if an active market exists for the asset, which is rare for most intangible assets.
Amortization and Impairment
Finite Useful Life: Amortized over the useful life.
Indefinite Useful Life: Not amortized, but tested for impairment annually.
Disclosure Requirements for Intangible Assets in Dubai
IAS 38 requires comprehensive disclosures for each category of intangible asset, including:
Useful life or amortization rate
Amortization method
Gross carrying amount and accumulated amortization/impairment
Reconciliation of carrying amount
Basis for indefinite useful life, if applicable
Description and carrying amount of material intangible assets
Details of government grants, title restrictions, and contractual commitments
Research and development expenditure recognized as an expense
Why Is IAS 38 Important for Dubai Businesses?
For companies operating in Dubai, IAS 38 ensures transparent and accurate financial reporting of intangible assets, supporting investor confidence and regulatory compliance. By properly recognizing and measuring intangible assets, Dubai-based organizations can better reflect their true value and strategic investments.
Singiri Auditing: Your Trusted Partner for IFRS and IAS 38 Compliance in Dubai
At Singiri Auditing, we help businesses in Dubai navigate the complexities of IAS 38 and other IFRS standards. Contact us today to ensure your intangible assets are accounted for accurately and in full compliance with international best practices.
