How do you capitalize software development costs — IFRS vs. local GAAP?

R&D is split into two phases. Research phase: expensed IMMEDIATELY (no option). Development phase: MUST be capitalized when 6 criteria are met (technical feasibility, intent to sell, availability of resources, etc.). Capitalized software is amortized over its useful life (typically 3–5 years). Local GAAP: capitalizing internally generated intangibles is PERMITTED (an option introduced by a 2010 local GAAP reform), but the research phase EXPLICITLY is not. In practice: many middle-market companies do NOT capitalize (the conservative local-GAAP approach), whereas IFRS reporters must.

Consequence for the comps comparison: SAP (IFRS, capitalizes) shows higher EBITDA than a comparable local-GAAP reporter that expenses R&D in full. Adjustment in DD: for an apples-to-apples comp, reclassify R&D into capex or vice versa.