How is control of an intangible asset established under IAS 38.13?

Under IAS 38.13 Control of Intangible Assets, an entity controls an intangible asset if it has the power to obtain future economic benefits flowing from the underlying resource and can restrict others' access to those benefits — typically evidenced by legal rights, though legal enforceability is not strictly required. - Two-limb test (IAS 38.13): Control requires demonstrating both (1) power to obtain future economic benefits (e.g., revenue, cost savings) and (2) the ability to restrict third-party access. Both limbs must be satisfied simultaneously — satisfying only one is insufficient for recognition. - Legal rights as the primary evidence (IAS 38.13): Ownership of a patent, copyright, licence agreement, or restraint-of-trade covenant typically provides the clearest evidence of control. However, IAS 38.13 explicitly states that legal enforceability is not a necessary condition; control can exist via other means, such as trade-secret management or technical confidentiality. - Skilled workforce and customer relationships (IAS 38.15–16): These are the most contested areas. An entity may have a highly trained team or deep customer loyalty, but because staff can resign and customers can defect — and no legal mechanism prevents this — control is generally absent. IAS 38.16 explicitly notes that customer lists acquired through non-contractual relationships rarely meet the control criterion unless supported by contracts or legal rights.

Under IAS 38.57, how do you determine the exact point at which a project transitions from the research phase to the development phase, and what documentation does an auditor expect?

- Separability vs. control (IAS 38.12): Separability (the ability to sell, transfer, or licence an item) is an indicator of an identifiable intangible but does not itself establish control. A customer database may be separable in theory, yet if access cannot be practically restricted, control may still fail. - Measurement link to control (IAS 38.21–22): Once control is established, initial recognition is at cost. For separately acquired intangibles, cost equals purchase price plus directly attributable expenditure (IAS 38.27). For internally generated intangibles, only development-phase costs meeting all six criteria in IAS 38.57 qualify; research-phase costs are expensed under IAS 38.54. - Disclosure of judgements (IAS 38.118–121): Where control determination involves significant judgement — particularly for internally generated brands, mastheads, or customer relationships — entities must disclose the nature of the asset, carrying amount, remaining useful life, and any restrictions on title. Scenario: A pharmaceutical company acquires a patent for a drug compound for €2,000,000. Legal ownership transfers on 1 January 20X1. The patent restricts competitors from manufacturing the compound for 15 years, and the company has exclusive distribution rights. Control is clearly established under IAS 38.13 — legal title provides both power to obtain economic benefits and the ability to restrict access.

If a customer list is acquired as part of a business combination under IFRS 3, can it be recognised separately even though it would fail the IAS 38.13 control test as an internally generated asset?

| Account | Dr (€) | Cr (€) | |---|---|---| | Intangible Asset — Patent | 2,000,000 | | | Cash / Payables | | 2,000,000 | Annual amortisation over 15-year useful life (straight-line, IAS 38.97): Annual charge = €2,000,000 ÷ 15 = €133,333 | Account | Dr (€) | Cr (€) | |---|---|---| | Amortisation Expense | 133,333 | | | Accumulated Amortisation — Patent | | 133,333 | Contrast: If the same company trains a specialist R&D team at a cost of €500,000, no intangible asset is recognised. Staff can resign; no legal right restricts that. Control under IAS 38.13 fails → expense immediately.

How does IAS 38.13 control interact with the treatment of in-licence agreements where the licensor retains reversionary rights — does the licensee control the intangible?

- Capitalising workforce competence: Practitioners sometimes argue that a stable, low-turnover workforce represents a controlled intangible. IAS 38.15 is unambiguous — the entity does not control the future economic benefits from a team of skilled people. Capitalising recruitment or training costs as an intangible asset is an error that auditors will challenge. - Confusing contractual rights with control over the customer relationship itself: A long-term supply contract gives contractual rights (potentially a separate intangible on acquisition), but the underlying customer relationship beyond that contract is not controlled. Mapping what is legally enforceable to what is actually capitalised requires careful disaggregation, particularly in business combinations under IFRS 3. - Applying separability as a proxy for control in business combinations: Under IFRS 3.B31–B32, the separability criterion can cause intangibles to be recognised at acquisition even when the acquiree never recognised them. Post-acquisition, the acquirer must still re-evaluate whether the control criterion continues to be met for subsequent expenditure — a frequently overlooked step. - IAS 38.13 — Core definition of control: power to obtain future economic benefits and restrict access. - IAS 38.15–16 — Specific guidance on why skilled staff and customer relationships typically fail the control test. - IAS 38.54 & 38.57 — Research vs. development expenditure; the six criteria required to capitalise development costs. - IAS 38.21 — Recognition criteria linking control to the probability of future economic benefits and reliable measurement. - IAS 38.118 — Disclosure requirements for intangible assets, including judgements made in applying the control criterion.

IAS 38.13 Control of Intangible Assets

IAS 38.13 Control of Intangible Assets — Core Rule

Under IAS 38.13 Control of Intangible Assets, an entity controls an intangible asset if it has the power to obtain future economic benefits flowing from the underlying resource and can restrict others' access to those benefits — typically evidenced by legal rights, though legal enforceability is not strictly required.

How IAS 38.13 Control of Intangible Assets Works

Two-limb test (IAS 38.13): Control requires demonstrating both (1) power to obtain future economic benefits (e.g., revenue, cost savings) and (2) the ability to restrict third-party access. Both limbs must be satisfied simultaneously — satisfying only one is insufficient for recognition.

Legal rights as the primary evidence (IAS 38.13): Ownership of a patent, copyright, licence agreement, or restraint-of-trade covenant typically provides the clearest evidence of control. However, IAS 38.13 explicitly states that legal enforceability is not a necessary condition; control can exist via other means, such as trade-secret management or technical confidentiality.

Skilled workforce and customer relationships (IAS 38.15–16): These are the most contested areas. An entity may have a highly trained team or deep customer loyalty, but because staff can resign and customers can defect — and no legal mechanism prevents this — control is generally absent. IAS 38.16 explicitly notes that customer lists acquired through non-contractual relationships rarely meet the control criterion unless supported by contracts or legal rights.

Separability vs. control (IAS 38.12): Separability (the ability to sell, transfer, or licence an item) is an indicator of an identifiable intangible but does not itself establish control. A customer database may be separable in theory, yet if access cannot be practically restricted, control may still fail.

Measurement link to control (IAS 38.21–22): Once control is established, initial recognition is at cost. For separately acquired intangibles, cost equals purchase price plus directly attributable expenditure (IAS 38.27). For internally generated intangibles, only development-phase costs meeting all six criteria in IAS 38.57 qualify; research-phase costs are expensed under IAS 38.54.

Disclosure of judgements (IAS 38.118–121): Where control determination involves significant judgement — particularly for internally generated brands, mastheads, or customer relationships — entities must disclose the nature of the asset, carrying amount, remaining useful life, and any restrictions on title.

IAS 38.13 Control of Intangible Assets — Practical Example

Scenario: A pharmaceutical company acquires a patent for a drug compound for €2,000,000. Legal ownership transfers on 1 January 20X1. The patent restricts competitors from manufacturing the compound for 15 years, and the company has exclusive distribution rights. Control is clearly established under IAS 38.13 — legal title provides both power to obtain economic benefits and the ability to restrict access.

Journal entry at acquisition (1 Jan 20X1)

Account	Dr (€)	Cr (€)
Intangible Asset — Patent	2,000,000
Cash / Payables		2,000,000

Annual amortisation over 15-year useful life (straight-line, IAS 38.97):

Annual charge = €2,000,000 ÷ 15 = €133,333

Account	Dr (€)	Cr (€)
Amortisation Expense	133,333
Accumulated Amortisation — Patent		133,333

Contrast: If the same company trains a specialist R&D team at a cost of €500,000, no intangible asset is recognised. Staff can resign; no legal right restricts that. Control under IAS 38.13 fails → expense immediately.

IAS 38.13 Control of Intangible Assets — Common Pitfalls

Capitalising workforce competence: Practitioners sometimes argue that a stable, low-turnover workforce represents a controlled intangible. IAS 38.15 is unambiguous — the entity does not control the future economic benefits from a team of skilled people. Capitalising recruitment or training costs as an intangible asset is an error that auditors will challenge.

Confusing contractual rights with control over the customer relationship itself: A long-term supply contract gives contractual rights (potentially a separate intangible on acquisition), but the underlying customer relationship beyond that contract is not controlled. Mapping what is legally enforceable to what is actually capitalised requires careful disaggregation, particularly in business combinations under IFRS 3.

Applying separability as a proxy for control in business combinations: Under IFRS 3.B31–B32, the separability criterion can cause intangibles to be recognised at acquisition even when the acquiree never recognised them. Post-acquisition, the acquirer must still re-evaluate whether the control criterion continues to be met for subsequent expenditure — a frequently overlooked step.

IAS 38.13 Control of Intangible Assets — Key Paragraphs

IAS 38.13 — Core definition of control: power to obtain future economic benefits and restrict access.
IAS 38.15–16 — Specific guidance on why skilled staff and customer relationships typically fail the control test.
IAS 38.54 & 38.57 — Research vs. development expenditure; the six criteria required to capitalise development costs.
IAS 38.21 — Recognition criteria linking control to the probability of future economic benefits and reliable measurement.
IAS 38.118 — Disclosure requirements for intangible assets, including judgements made in applying the control criterion.