Apple Gets Some Accounting Love

The squeaky wheel gets the grease every time. I'm just wondering why this well-oiled machine bothered to squeak at all.

The Financial Accounting Standards Board, which sets accounting standards for American business, unanimously approved a change in the timing of how companies recognize certain types of revenue. Apple (Nasdaq: AAPL  ) might be the biggest beneficiary of this change, which should allow the company to book a heckuva lot more iPhone sales dollars right up front. Until now, Apple has doled out a large portion of those sales over a two-year period, using a subscription-based accounting model.

The idea behind the rule change is to simplify accounting and make GAAP results look more like the non-GAAP results that many investors rely on. Apple was not alone in its quest -- high-profile tech firms like IBM (NYSE: IBM  ) , Cisco (Nasdaq: CSCO  ) , and Hewlett-Packard (NYSE: HPQ  ) joined Apple in lobbying the FASB for this change.

Nor will Apple be the only company affected by the new rules, which will be voluntary at first, but mandatory in 2011. Here's a taste of companies that defer a large part of their sales today:

Company	Deferred Sales / Total Sales
Maiden Holdings	43.8%
Apple	23.4%
MBIA (NYSE: MBI  )	14.8%
Red Hat (NYSE: RHT  )	11.3%
VMware (NYSE: VMW  )	11.1%

Source: Capital IQ, a division of Standard and Poor's.

Now, the new FASB rules shouldn't apply to MBIA and Maiden Holdings, since they work in the insurance business, and recognizing unearned premiums as current revenue doesn't make much sense. But VMware and Red Hat are in much the same boat as Apple -- selling products along with support contracts that sometimes see up-front payments spread out over several years on the income statement.

All of this is well and good -- yay for more transparency and easy-to-read financial statements! But it shouldn't affect how you value these stocks in the slightest. After all, expert investors typically focus on cash flows to calculate the intrinsic value of a stock. Operating cash flow figures already back out smoke-and-mirrors effects like deferred revenue.

In other words, if you see Apple or Red Hat popping hard when they adopt the new rules, or when their first earnings report thereafter shocks and awes the Street, don't get tricked into thinking it's a big deal. In all likelihood, though, everyone will get used to this new paradigm quickly.