Performance obligation
Definition
Under IFRS 15 and ASC 606, the distinct promise to transfer a good or service to a customer. Revenue can only be recognised when, or as, a performance obligation is satisfied, not when a contract is signed or cash received in advance.
Related terms
- Bill-and-hold
- An arrangement where title passes and revenue is recorded even though the seller retains physical possession of the goods at the buyer's...
- Channel stuffing
- Oversupplying distributors or retailers with inventory accompanied by side agreements that neutralise the economic risk of the transfer, such as guaranteed return...
- Days Sales Outstanding (DSO)
- Accounts receivable divided by average daily revenue. A rising DSO alongside growing reported revenue is a classic early indicator that booked sales...
- Fictitious revenue
- Revenue recorded for a transaction that did not occur at all, or that involved a related party cycling funds to simulate customer...
- Premature revenue recognition
- Recording revenue in an earlier period than the standards permit, typically by treating an uncompleted performance obligation as satisfied. The transaction is...
Explained in
- Revenue Recognition FraudUnder IFRS 15 and ASC 606, the distinct promise to transfer a good or service to a customer. Revenue can only be recognised when, or as, a performance obligati...