Pre-training versus fine-tuning
Pre-training builds general capability with no specific, feasible asset yet demonstrable, so it usually reads as research and is expensed. Fine-tuning adapts an existing base model to a defined internal use, which can reach development phase under IAS 38 or the probable-to-complete threshold under ASC 350-40, allowing capitalisation from the point the tests are met.
Why pre-training is usually expensed
Pre-training from scratch is open-ended: the entity cannot demonstrate technical feasibility or a probable specific benefit while capability is still being built. That places it in the research phase under IAS 38 and the preliminary or uncertainty-blocked zone under US GAAP, so the spend is expensedIAS 38§54.
Why fine-tuning can be capitalised
Fine-tuning an existing base model for a defined internal use can reach development phase. Capitalisation is permitted only once all six IAS 38 recognition criteria are met, and only from that point forward.
Fine-tuning for internal use can be capitalised once it is probable the project will be completed and the software used as intended, provided no significant development uncertainty remains.
Fine-tuning starts from a proven base model and targets a defined internal use. Where the entity can demonstrate feasibility, intention, resources and probable benefit, the development-phase costs from that point can be capitalisedIAS 38§57. The judgement is when the six criteria, or the probable-to-complete threshold, are first met.
An entity licenses a base model and fine-tunes it for internal contract review. The first three weeks test whether the approach works at all (research, expensed). After a prototype meets the target accuracy on a held-out set and the project is funded and resourced, the remaining build cost is capitalised. All figures are illustrative.
- S1IAS 38 Intangible Assets, IFRS Foundation (IFRS). https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/
- S2Handbook: Software and website costs (ASC 350-40 internal-use software), KPMG (US GAAP). https://kpmg.com/us/en/frv/reference-library/2026/handbook-software-website-costs.html