Flag service contracts that may contain a lease

A service agreement can include rights to use equipment or space even if its title never says lease. Ask procurement and operating teams to flag contracts that specify assets, locations, dedicated capacity, or restrictions on substitution. Send the actual contract and operating facts to the accountant. The initial flag identifies a question; it does not establish that the arrangement contains a lease.

The IFRS Interpretations Committee's March 2023 discussion explains that IFRS 16's definition concerns control over use of an identified asset for a period in exchange for consideration. It considers both economic benefits and direction of use. Other accounting frameworks require their own analysis, so the screening process must lead to a qualified conclusion under the company's basis.

Identify the asset or capacity involved and how it is selected. Ask who decides how and for what purpose it is used, who receives its output, and whether the supplier can substitute another asset. Obtain information about actual substitution rights and operational feasibility. A broad substitution clause may need assessment beyond its mere presence in the contract.

Use specific questions for the operating owner. Is the equipment dedicated to the company throughout the term? Can the supplier use it for other customers? Who determines the production schedule or location? What happens if the asset breaks? Record answers and their evidence without turning a general screening checklist into an automatic accounting decision.

In a hypothetical arrangement, a supplier promises a defined service volume and can choose among several facilities. In another, the agreement specifies a particular piece of equipment and gives the customer particular operating rights. These fact patterns call for different questions. Neither should be classified solely from a fee description such as equipment service or capacity charge.

The IFRS Committee also discusses substantive substitution rights and separate components. Provide the accountant with the facts needed for those assessments, including any related services and dependencies. Do not assume that a contract is entirely a lease or entirely a service because one component appears clear. Retain the full agreement so the reviewer can assess the arrangement as required.

Document which contract sources the team reviewed: procurement records, legal files, major supplier lists, and relevant operating teams. Include renewals and amendments with new contracts. Compare material recurring charges with the contract register to identify arrangements that bypassed the normal intake process. Record any known gaps for follow-up.

The screening effort should match the company's circumstances. A focused review of asset-dependent contracts can be more useful than sending every routine purchase through a lengthy questionnaire. Ask the accountant to approve the screening criteria and escalation path. Preserve excluded categories and the reason for excluding them so the next reviewer understands the population examined.

For each reviewed contract, retain the accounting conclusion, applicable framework, reviewer, significant facts, and relevant dates. If a lease is identified, agree the measurement inputs and schedule owner before posting. If no lease is identified, keep the reason so the same contract does not require reconstruction at each close.

Flag events that could change the analysis, such as amended asset rights, a different supplier substitution arrangement, or a new term. Route those changes back to the accountant. The completed project should leave a contract population, supported conclusions, and a practical intake process for future agreements, rather than a one-time list that becomes stale as procurement signs new terms.