When businesses enter into contracts with customers, they often include both explicit obligations (clearly written into the sales order or contract) and implied obligations (promises that are not formally captured but are still expected by the customer).
Under ASC 606 and IFRS 15, companies must identify and account for all obligations—explicit or implied—to ensure proper revenue recognition.
This is where Performance Obligation Templates and Implied Performance Obligation Templates come into play. Together, they help automate the identification, grouping, and recognition of performance obligations across a wide range of scenarios.
What Are Implied Performance Obligations?
Implied performance obligations are promises that are not explicitly listed in a customer contract or sales order but are understood to be part of the deal.
Example:
A mobile phone company advertises: “Buy a phone, get a free charger.”
- The sales order only shows the phone.
- The charger is not captured in the system.
- However, from a customer and accounting perspective, the charger is still a promised item.
👉 Why it matters: If the implied obligation is ignored, the revenue allocated to the contract will be inaccurate, leading to compliance risks under ASC 606 / IFRS 15.
What Are Implied Performance Obligation Templates?
Implied Performance Obligation Templates are predefined rules in the revenue management system that automatically add these hidden obligations whenever such conditions occur.
Instead of relying on manual intervention, templates automate the process of:
- Identifying implied items or services.
- Adding them into the revenue contract.
- Reallocating transaction price across all obligations.
This ensures accuracy, consistency, and compliance across every transaction.
Examples of Implied Performance Obligations
- Free Accessories – Buy a phone, get a charger.
- Promotional Offers – Buy one product, get another free.
- Implied Services – Equipment purchase that includes free installation.
- Warranties or Support – Laptop includes one year of free support.
- Discounted Add-ons – Bundle includes extra service implied though not listed.
What Are Performance Obligation Templates?
Performance Obligation Templates, by contrast, are used to group together items routinely sold as a bundle and treat them as a single performance obligation.
Example:
- A car manufacturer sells a truck + trailer as a package.
- A telecom provider bundles Internet + TV + Phone services.
These templates help businesses standardize bundles, apply the Standalone Selling Price (SSP), and ensure revenue allocation aligns with ASC 606 / IFRS 15.
Performance Obligation Templates vs. Implied Performance Obligation Templates
Here’s a side-by-side comparison to clearly understand the differences:
📊 Comparison: Performance Obligation Templates vs. Implied Performance Obligation Templates
| Aspect | Performance Obligation Templates (PO Templates) | Implied Performance Obligations |
| Definition | Predefined groupings of items (bundles) that are routinely sold together and treated as a single performance obligation. | Performance obligations that aren’t explicitly captured in the system but are implied by the terms of the contract or customer expectations. |
| When Used | Used when the business knows in advance that certain items are always sold together and wants to automate the grouping. | Used when a contract implicitly contains an obligation, but no explicit line/item in the system records it. |
| Example 1 | A car manufacturer bundles a truck + trailer into one obligation. The template ensures every contract treats them as one. | A software license contract implies free upgrades during the year, even though upgrades are not separately listed in the contract. |
| Example 2 | A software company bundles License + 1-Year Support as one obligation. | A gym membership contract includes free access to an app (not written separately but expected by customers). |
| Example 3 | A telecom provider bundles Phone + 24-Month Service Plan as one obligation. | A consulting engagement implies ongoing post-project support calls, though not stated as a contract line item. |
| How It’s Defined | Explicitly created by the business in the system through setup/configuration (templates tied to Standalone Selling Price profiles). | Defined through business rules in the system (or manually) to capture obligations implied by contract language or customer promises. |
| Purpose | Streamline and standardize how recurring bundles are treated; eliminate manual grouping. | Ensure completeness in revenue recognition by capturing hidden or implied obligations that aren’t directly stated. |
| Accounting Impact | Price allocation is applied consistently across bundles; supports correct revenue scheduling. | Prevents understatement of obligations and ensures compliance by recognizing implied promises. |
| Audit Perspective | Auditors see predefined templates consistently applied across contracts. | Auditors verify management’s judgment in defining implied obligations and rules for capturing them. |
| Revenue Allocation | Contract price allocated across bundled items in the template. | Contract price reallocated to include implied items so revenue reflects true obligations. |
| Customization | Based on business-defined bundles. | Based on business rules and conditions (e.g., if X is purchased, add Y). |
| Compliance Role | Ensures bundled products/services are treated as one obligation per standards. | Ensures hidden or promotional promises are captured for compliance. |
✅ Key Takeaway
- PO Templates = Predefined bundles you intentionally design (efficiency + automation).
- Implied POs = Hidden promises customers reasonably expect even if not in the contract system (completeness + compliance).
Both are crucial for ASC 606 / IFRS 15 compliance:
- Templates ensure consistency.
- Implied obligations ensure nothing is missed.
Why This Matters for Businesses
- Compliance: Prevents under-reporting of obligations, ensuring adherence to ASC 606 / IFRS 15.
- Accuracy: Guarantees revenue allocation reflects the true value of goods and services delivered.
- Automation: Removes manual corrections, reducing errors.
- Transparency: Provides clearer visibility for auditors, investors, and management.
Final Thoughts
Implied Performance Obligation Templates are not just about compliance—they are about building trust in financial reporting. By ensuring all promises (explicit or implied) are recognized, businesses can:
- Deliver accurate revenue recognition.
- Align with global standards.
- Gain full visibility into profitability.
In practice, companies need to leverage both types of templates—Performance Obligation Templates for bundles and Implied Templates for promotions or hidden promises—to achieve complete compliance with ASC 606 / IFRS 15.
Enterprise Resource Planning and Integrations BlogSpot 