IFRIC 4
Withdrawn
Determining whether an Arrangement contains a Lease
Clarified when an arrangement not in the legal form of a lease nonetheless contains a lease. Withdrawn in 2019 and its guidance absorbed directly into IFRS 16.
Withdrawn Standard
IFRIC 4's guidance for identifying whether an arrangement contains a lease was withdrawn and absorbed directly into IFRS 16's own 'identifying a lease' requirements (paragraphs 9-11), rather than being replaced by a separate interpretation.
This poster is retained for historical reference and to help practitioners understand the conceptual lineage of today's lease identification test. For current lease identification requirements, always apply IFRS 16.
Current Standard
IFRS 16 Leases 1
Conceptual Framework Linkage (Historical)
A substance-over-form pioneer, later absorbed into the standard itself
IFRIC 4 established that an arrangement could CONTAIN a lease even WITHOUT being structured in the legal form of one – for example, a long-term supply or take-or-pay contract dependent on a SPECIFIC asset that the customer effectively controls. This SUBSTANCE-OVER-FORM approach was so fundamental that when IFRS 16 was developed, the IASB chose to INCORPORATE this identification logic directly into the new leases standard.
WHY THIS ABSORPTION HAPPENED
Simplification – folding lease IDENTIFICATION and lease ACCOUNTING into a single standard reduced the need to cross-reference a separate interpretation Conceptual continuity – IFRS 16's own "identifying a lease" test preserves IFRIC 4's core substance-based logic almost UNCHANGED
This is a genuinely INSTRUCTIVE case of a withdrawn interpretation whose SUBSTANCE lives on almost entirely intact within its successor standard.
The two-part test IFRIC 4 established
Arrangement contains a lease IF: (1) fulfilment depends on a specific asset, AND (2) the arrangement conveys a right to use that asset
ℹ️ This TWO-PART logic is the direct conceptual ancestor of IFRS 16's own "identified asset" + "right to control" test.
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Scope & Definitions (Historical)
What IFRIC 4 covered
IFRIC 4 applied to arrangements that did NOT take the legal form of a lease but might nonetheless convey a right to use an asset in return for a payment or series of payments – historically significant for outsourcing, take-or-pay, and power purchase agreement structures.
Key definitions (historical)
Specific asset
An asset explicitly or implicitly identified in an arrangement, a concept CARRIED FORWARD into IFRS 16's "identified asset" language.
Take-or-pay contract
A contract requiring payment regardless of whether the buyer takes delivery, a common historical IFRIC 4 application context.
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The Two-Part Identification Test (Historical)
The conceptual ancestor of IFRS 16's own test
BOTH conditions had to be met: fulfilment depended on the use of a SPECIFIC asset (explicitly or implicitly identified), AND the arrangement conveyed a RIGHT TO USE that asset – this exact two-part logic is PRESERVED in IFRS 16's own current lease identification test.
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Right to Control the Use of the Asset (Historical)
Historical illustration
Example 1: A power purchase agreement historically assessed under IFRIC 4
A manufacturing company entered a long-term power purchase agreement with a specific power plant, taking substantially ALL of the plant's output, with pricing NOT based on market rates but on a formula tied to the plant's own fixed and variable costs.
Under IFRIC 4's historical test, this arrangement was likely determined to CONTAIN A LEASE of the power plant, since it depended on a SPECIFIC identified asset and the pricing/output structure indicated the buyer effectively obtained the right to control or use substantially all of the plant's capacity – an analysis that would reach the SAME conclusion under IFRS 16's current identification test today.
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Fulfilment Dependent on a Specific Asset (Historical)
A concept preserved almost unchanged
If the supplier had the PRACTICAL ability to substitute alternative assets throughout the period of use, and it would be economically ADVANTAGEOUS to do so, the arrangement did NOT depend on a specific asset – this "substitution rights" concept is PRESERVED essentially unchanged as IFRS 16's own substantive substitution rights exclusion.
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Reassessment Triggers (Historical)
Absorbed into IFRS 16's own reassessment framework
IFRIC 4 required reassessment upon a change in contractual terms, renewal, or a change in the determination of whether fulfilment depended on a specific asset – this reassessment LOGIC continues, in modified form, within IFRS 16's own lease modification framework.
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How This Guidance Became IFRS 16
A genuinely instructive absorption case
When developing IFRS 16 (issued 2016, effective 2019), the IASB determined that a SEPARATE interpretation for lease identification created unnecessary complexity alongside a comprehensive new leases standard. IFRIC 4's core substance-based test was therefore RE-DRAFTED and incorporated as paragraphs 9-11 of IFRS 16 itself, with IFRIC 4 FORMALLY WITHDRAWN upon IFRS 16 becoming effective.
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Common Historical Application Areas
Where this analysis was most frequently applied
Power purchase agreements, take-or-pay supply contracts, outsourcing or IT service arrangements involving dedicated hardware, and toll manufacturing or processing agreements – ALL contexts where IFRS 16's current lease identification test remains equally relevant TODAY.
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Disclosure (Historical)
Historical disclosure expectations
Description of arrangements determined to contain a lease Basis for the specific asset and right-to-use determination
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Judgments & Estimates (Historical)
Where judgement historically mattered most
SIGNIFICANT JUDGEMENTS
Whether substitution rights were genuinely substantive Whether the arrangement conveyed a right to control use, versus merely purchasing output or services
SIGNIFICANT ESTIMATES
None typically significant – primarily a qualitative identification test
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IFRIC 4 vs Current IFRS 16 Test
Comprehensive historical-to-current comparison
FeatureIFRIC 4 (historical)IFRS 16 (current)
Core identification logicSpecific asset + right to useSUBSTANTIALLY PRESERVED as "identified asset" + "right to control"
Location of guidanceSeparate interpretationAbsorbed directly into paragraphs 9-11 of the leases standard itself
Substitution rights conceptPractical ability + economic advantage testIDENTICAL substantive substitution rights exclusion
IFRIC 4 stands out as a withdrawn interpretation whose CORE LOGIC survives almost entirely intact within its successor standard.
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Statement Mapping (Historical)
Where IFRIC 4 determinations historically fed into
ItemStatement(s) affectedNotes
Arrangement identified as containing a leaseSOFPFed into former IAS 17 lease classification, now IFRS 16's own model
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Related Standards
Cross-reference map
StandardConnection
IFRS 16The CURRENT standard, absorbing IFRIC 4's lease identification test directly
IAS 17The predecessor leases standard IFRIC 4 historically supported
Quick-reference glossary
Substantive substitution right
A supplier's practical ability AND economic incentive to substitute an alternative asset, negating an "identified asset" – identical concept carried into IFRS 16.
Right to control use
The current IFRS 16 terminology for what IFRIC 4 originally termed the "right to use" test.
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Glossary
Specific asset
An asset explicitly or implicitly identified in an arrangement, a concept carried forward into IFRS 16's 'identified asset' language.
Substantive substitution right
A supplier's practical ability and economic incentive to substitute an alternative asset, negating an 'identified asset'.
Take-or-pay contract
A contract requiring payment regardless of whether the buyer takes delivery, a common historical IFRIC 4 application context.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Dec-2004
In December 2004 the International Accounting Standards Board issued IFRIC 4 Determining whether an Arrangement contains a Lease. It was developed by the Interpretations Committee.
Jan-2016
IFRS 16 Leases issued
IFRIC 4 withdrawn and its guidance absorbed directly into IFRS 16