The six recognition criteria
IAS 38 permits capitalising development expenditure only when the entity can demonstrate all six conditions in paragraph 57: technical feasibility, intention to complete, ability to use or sell, probable future economic benefits, availability of resources, and reliable measurement of the attributable costS1. All six must be met at once, and capitalisation runs from that date.
The ledger
The criteria are cumulative. The ledger below states each one, what the entity must show, and the artefact an auditor typically accepts as evidence.
| § | Criterion | What must be shown | Evidence artefact |
|---|---|---|---|
| 01 | Technical feasibility | Completing the asset so it is available for use or sale is technically feasible. | Prototype hitting target metrics on held-out data |
| 02 | Intention to complete | The entity intends to complete the intangible and use or sell it. | Approved project plan and roadmap |
| 03 | Ability to use or sell | The entity is able to use or sell the intangible. | Deployment path or integration design |
| 04 | Probable future economic benefits | The intangible will generate probable future economic benefits, demonstrated by a market or by usefulness for internal use. | Business case, usage or cost-saving model |
| 05 | Availability of resources | Adequate technical, financial and other resources are available to complete and use or sell it. | Committed budget, staffing and compute plan |
| 06 | Reliable measurement | The expenditure attributable to the intangible can be measured reliably. | Time-tracking and cost-allocation records |
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The criterion that trips AI programmes
Technical feasibility and probable future economic benefits are the two conditions most often unmet for a novel model. Where a model's ability to reach its specification is genuinely unproven, feasibility cannot be demonstrated and capitalisation cannot begin, regardless of committed fundingIAS 38§57. Reliable measurement also fails quietly where the team keeps no contemporaneous record of attributable time and compute.
- S1IAS 38 Intangible Assets, IFRS Foundation (IFRS). https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/