Intangible Assets Identification and Valuation

IAS 38 defines intangible assets as an identifiable non-monetary asset without physical substance, wherein an asset is a resource controlled by an entity as a result of past events, and from which future economic benefits are expected to flow to the entity [IAS38.8]. The three key characteristics that define an intangible asset include:

  • Identifiability
  • Control and
  • Future economic benefits.

In this blog, we focus on the element of the identification of intangible assets. One of the biggest challenges faced while valuing intangible assets is the identification of such assets, simply because, unlike physical assets that are tangible, and easily recognized, intangible assets are more difficult to distinguish as there could be differences in perception of what constitutes value, and what would be considered as an intangible asset.

In line with IAS38.12, an intangible asset is identifiable, and can be distinguished from goodwill, if it meets either:

  • The separability criterion i.e. capable of being separated from the entity and sold, transferred, licensed, rented or exchanged, (or)
  • the contractual-legal criterion. i.e. arises from contractual or other legal rights, regardless of whether such rights are transferrable or separable from the entity or from other rights and obligations.

Some of the commonly identified intangible assets include:

  • Intellectual property, trademarks/ tradenames, customer lists/ relationships, orders on hand, customer contracts, non-competition agreements, franchise agreements, proprietary software, use rights (landing, drilling, etc.), certifications, databases, to name a few.

Whilst these comprise commonly identified intangible assets, the valuer needs to be able to understand the intricacies and dynamics of the client’s specific industry in order to be able to identify intangible assets that are peculiar to that specific sector. For instance, trade secrets such as secret formulas/ recipes for a food chain/ restaurant.

The process of identifying intangible assets on acquisition is a critical part of a valuation engagement. A good starting point is to look at all the available acquisition-related documents such as the Sale and Purchase Agreement, due-diligence reports (financial, commercial, operational, legal) as available, information memorandum, investor presentations, etc. as such documents contain several references and provide valuable inputs on potential intangibles present in the business. This is followed by detailed discussions with key members of the management to obtain a thorough understanding of the business, the rationale for the acquisition, operating model, key differentiators, value drivers, etc. towards this identification process. As there is a significant amount of judgment and subjectivity in such valuation engagements, ultimately, it can boil down to the skills of the valuer.

In subsequent blogs, we shall look at the other characteristics of intangible assets, key considerations, issues faced, and how we can help your organisation ease through the process of navigating through complex issues surrounding the valuation of intangible assets.

PKF’s service offering

We have a team of highly experienced professionals who have the expertise of valuing intangible assets. We undertake post-acquisition purchase price allocations, and the subsequent annual impairment testing of goodwill and intangible assets. Please feel free to get in touch with us on