"Turnover is vanity, profit is sanity, but cash is king". The point of the old saw is that we're all meant to concentrate on what really matters in business: cash. But let's face it, size also matters. Who isn't impressed by companies that manage to grow quickly?

When I talk about growth, I mean turnover. I doff my cap to all of you who have managed to engineer bottom-line growth in the past couple of years by squeezing costs and working capital. But a business can't grow over the long term without raising revenues, whether that's vanity or not. That's made massaging the top line one of the surest ways to keep investors convinced that your company is moving in the right direction.

I've certainly come across revenue recognition policies which would not withstand the scrutiny of the UK Accounting Standard Board's (ASB) application note on FRS5, reporting the substance of transactions, which was published late last year. One company I know sold customers a $1,000 benefit card providing a range of services/goods. It was not only sloppy accounting, breaking the "matching" principle, it was also stealing from future years to bolster this period's results, which means you have to run faster next year just to stand still.

The new application note aims to stop all that. It has to be complied with for accounts with a year-end after December 2003. It deals specifically with five types of arrangement that have led to fun and games in the past: long-term contractual performance; separation and linking of contractual arrangements; bill-and-hold arrangements; sales with right of return; and presentation of turnover as principal or as agent.

Let's focus in on one of those items. I'm guessing that for the retail FDs among you, the Christmas period was a make or break time. One element which might make a material difference is returns but, in many organisations, they don't feature in the accounts. OK, so a few per cent of your sales sent back may not seem much yet it feeds straight through to the bottom line.

Most of you will have a pretty fair idea of these practices, in which case, the ASB just may have done you a favour.

Don't underestimate how serious this is. Specialist magazine Company Reporting has claimed that there is "a general raggedness" about UK companies' revenue recognition policies. It worked out that 40 per cent of companies do not disclose their policy in their annual accounts. That suggests it's not regarded as fundamental. The ASB's clarification note makes clear that it should be. If it does what it's designed to do, it will have a double benefit of boosting investors' faith in your figures - and it should also help you reign in wayward managers.

Whether this revision to FRS5 will force companies to improve policy and presentation of revenue recognition, remains to be seen. And, annoyingly, this version of FRS5 looks like it might end up as an interim fix. International standard IAS 18 has currently got a "work in progress" sign up over the door, although the ASB is adamant that the lASB's eventual interpretation will be consistent with the approach it has adopted.

In other words, it will be consistent with the general principle of revenue recognition under UK GAAP that the buyer assumes from the seller the significant risk and rewards of ownership of the assets sold, and that the amounts of revenue must be reliably measurable and certain. Of course, one reason why you might choose not to go too hard on revenue recognition in the management accounts could be internal politics. In one fell swoop, you could put the wind up the directors in charge of sales, distribution and production.

A change in accounting for returns could highlight some poor quality work, putting the production guys in the spotlight. Distribution could be unhappy if any "pipelining" (where the wholesale or retail pipe line is choked to get rid of high stock levels at critical times) is exposed.

However, perhaps most significantly, the sales director and their team could get seriously peeved if you start to take a hard line on revenue recognition. Many companies experience tension between sales - who don't care who they sell to as long as they can claim the commission - and finance- which has to try and collect from the various dodgy clients the sales team has unearthed using laughable credit terms.

Or maybe you've been looking for an excuse for an internal crackdown of discounts. The company, see above, recognised the $1,000 straight away - which was a bit naughty for two reasons : firstly , the card was valid for three years - and even accounting novices will tell you that the revenue should be spread in some way over that period of time ; secondly, clients could cancel the card at any time and receive a refund. The sales and finance teams should have a shrewd idea what percentage of sales will be returned, yet despite that near-certain knowledge, returns are often buried. If you sell 100 and know that, on average, two are returned why not book 98 as sales? If the returns were highlighted in that way in the accounts, it might make operational management think about how it could reduce them.