While lacking the magnitude and audacity of the Enron and WorldCom scandals, aggressive practices for revenue recognition inflated the past financial statements of far too many tech companies.

Backdated contracts, overlooked contractual conditions, hidden side letters, verbal commitments, and numerous other financial sleights-of-hand, boosted reported revenue and headed off Wall Street disappointments.

Most of these practices only accelerated revenue recognition and did not create fictional revenue from non-existent sales. Whatever its form, such "revenue" almost always inflated Accounts Receivable and Days Sales Outstanding (DSO) since cash flowed slowly from such sales.

Astute board members and investors who understand this principle track DSOs in order to verify management's veracity in revenue recognition.

Given the accounting scandal publicity and Sarbanes-Oxley certification requirements, if many companies did inflate past revenues, stricter adherence to the rules should now decrease DSOs. Indeed, Table 1 shows the predicted result. For several years through the end of 2000, DSOs of the Culpepper 100+ averaged about 85, plus or minus a couple of days. Typically, DSOs peaked in the fourth quarter due to the big bookings of sales at year end.