Remaining Performance Obligation (RPO)
A remaining performance obligation (RPO) is the portion of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the reporting date. In short: contracted revenue that has not yet been recognized.
Revenue Recognition
Explanation
ASC 606 and IFRS 15 require entities (under ASC 606, nonpublic entities may elect not to) to disclose the aggregate amount of the transaction price allocated to remaining performance obligations and when they expect to recognize it, either quantitatively in time bands or qualitatively. RPO includes both deferred revenue (amounts already billed) and contracted amounts not yet invoiced, so it is broader than the contract liability balance.
Both standards offer practical expedients that allow entities to omit certain contracts from the disclosure, for example contracts with an original expected duration of one year or less, or arrangements where revenue is recognized using the right-to-invoice expedient. ASC 606 adds an exemption for certain variable consideration. Entities using an expedient must disclose that fact.
Why It Matters
RPO is closely watched by investors as a forward-looking indicator, especially for subscription and long-term service businesses, and it is a frequent audit and regulator focus. Building it from spreadsheets is error-prone. In SAP RAR, allocated transaction prices and fulfillment progress are held per performance obligation, which provides the data basis for RPO reporting directly from the revenue subledger.
Related Terms
Performance Obligation · Transaction Price · Contract Liability · Practical Expedient · SAP RAR · Annual Recurring Revenue (ARR)
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