Accounting alternatives for private companies under US GAAP

US GAAP was written with public companies in mind, and some of its requirements cost private companies far more than they are worth to a bank or a few owners. The Private Company Council's alternatives take some of that cost out without leaving GAAP. This guide lists each alternative and what it allows, works through goodwill amortization, explains who cannot elect them and what happens on an IPO or sale, and compares them with IFRS for small entities.

By Hamza Fida, Chartered Accountant (ICAP). Reviewed by Mirza Fahad Baig, Chartered Accountant (ICAP). Updated . 7 minute read.

Short answer

Private company alternatives are simpler accounting methods within US GAAP that companies other than public business entities may elect, developed by the Private Company Council and endorsed by the FASB. The main ones let a private company amortize goodwill over up to 10 years and test it only when a triggering event occurs; avoid recognizing some customer-related intangibles and noncompete agreements separately in an acquisition; use simplified hedge accounting for interest rate swaps on variable-rate debt; skip the variable interest entity model for entities under common control; use a risk-free discount rate for leases by asset class; follow written terms for common control leases; use practical expedients for valuing stock compensation; and, since ASU 2025-05, consider cash collected after the balance sheet date in estimating credit losses on current receivables. Private companies also escape some requirements entirely, such as earnings per share and segment reporting. A company that later becomes a public business entity, including one whose statements are included in another company's SEC filing, must unwind the alternatives. In this guide's example, $1.2 million of goodwill is amortized at $120 thousand a year.

At a glance

Who can elect
Private companies, NFPs
Set by
Private Company Council
Goodwill
Amortize, up to 10 years
Electing
No preferability test
Trap
Unwind if going public
Also exempt
EPS and segments
Accounting alternatives for private companies under US GAAPWho can elect: Private companies, NFPs; Set by: Private Company Council; Goodwill: Amortize, up to 10 years; Electing: No preferability test; Trap: Unwind if going public; Also exempt: EPS and segments.KEY FACTS AT A GLANCEAccounting alternatives for private companiesunder US GAAPWho can electPrivate companies, NFPsSet byPrivate Company CouncilGoodwillAmortize, up to 10 yearsElectingNo preferability testTrapUnwind if going publicAlso exemptEPS and segmentsTax BakersAccounting alternatives for private companies under US GAAPWho can elect: Private companies, NFPs; Set by: Private Company Council; Goodwill: Amortize, up to 10 years; Electing: No preferability test; Trap: Unwind if going public; Also exempt: EPS and segments.KEY FACTS AT A GLANCEAccounting alternatives forprivate companies under US GAAPWho can electPrivate companies, NFPsSet byPrivate Company CouncilGoodwillAmortize, up to 10 yearsElectingNo preferability testTrapUnwind if going publicAlso exemptEPS and segmentsTax Bakers
Key facts at a glance, as set out in this guide.

What are private company alternatives in US GAAP?

Elective accounting methods, written into the Codification, that only entities other than public business entities may use. The Private Company Council, set up by the Financial Accounting Foundation in 2012, identifies areas where GAAP's costs outweigh the benefits for private company users, and proposes alternatives that the FASB then endorses. A company can adopt an alternative the first time without showing that it is preferable, and most can be elected independently. Many also apply to not-for-profit entities. See what is US GAAP and not-for-profit accounting under US GAAP.

Which private company alternatives are available?

AreaStandardWhat a private company may do
Goodwill amortizationASU 2014-02, extended by ASU 2021-03Amortize goodwill straight-line over up to 10 years; test for impairment only when a triggering event occurs, in one step, at entity or reporting unit level, and evaluate triggering events only at the reporting date
Intangibles in acquisitionsASU 2014-18Do not recognize customer-related intangibles that cannot be sold or licensed separately, or noncompete agreements, apart from goodwill; requires the goodwill alternative
Interest rate swapsASU 2014-03Simplified hedge accounting for receive-variable, pay-fixed swaps that fix the rate on variable-rate debt: assume no ineffectiveness and carry the swap at settlement value
Common control entitiesASU 2018-17Do not apply the variable interest entity model to legal entities under common control that meet the criteria, with disclosures instead
Stock compensationASU 2021-07 and earlierEstimate the current share price with a reasonable valuation method, use a simplified expected term, and measure liability awards at intrinsic value
Lease discount rateASU 2021-09Use a risk-free rate for leases, elected by class of underlying asset rather than for all leases
Leases under common controlASU 2023-01Use the written terms of a lease between entities under common control to decide whether a lease exists and how to classify it
Credit losses on receivablesASU 2025-05With the practical expedient that current conditions persist, consider cash collected after the balance sheet date when estimating losses on current receivables

See the private company goodwill alternative, variable interest entities, the ASC 842 discount rate and ASC 718 stock compensation.

Private company alternatives in practice: amortizing goodwill

A private company buys a competitor and recognizes $1,200 thousand of goodwill. Electing the alternative, it amortizes the goodwill straight-line over 10 years, $120 thousand a year, and checks for triggering events only at each year end. A public company with the same goodwill keeps it at $1,200 thousand unless it is impaired, and tests it at least once a year.

Goodwill carried: public vs private company ($ thousand)Goodwill carried: public vs private company ($ thousand)1,2001,080Year 11,200960Year 21,200840Year 31,200720Year 41,200600Year 5Public company: impairment onlyPrivate company: amortized
Amortization brings goodwill down steadily instead of in occasional impairments.

After five years the private company carries $600 thousand and has expensed $600 thousand, so a later impairment, if any, is smaller. If it elected the intangibles alternative too, customer relationships it could not sell separately would have been folded into goodwill and amortized with it, rather than valued separately at the acquisition date.

Which requirements do private companies not apply at all?

  • Earnings per share under ASC 260 and segment reporting under ASC 280. See ASC 280 segment reporting.
  • The expense disaggregation of ASU 2024-03, which applies only to public business entities.
  • Several disclosures, such as the Level 3 roll-forward in ASC 820 and fair values of financial instruments carried at amortized cost under ASC 825.
  • Lighter income tax disclosures under ASU 2023-09. See ASU 2023-09 income tax disclosures.

Who cannot elect private company alternatives?

Public business entities. The definition is wider than SEC registrants: it includes companies with securities traded over the counter, and companies whose financial statements are included in another company's SEC filing, such as a significant business acquired by a public company or a significant equity method investee. A private company that expects to go public, or to be bought by a public company, should consider the cost of reversing the alternatives retrospectively, especially goodwill amortization and the intangibles alternative, which are difficult to unwind years later.

How do private company alternatives compare with IFRS?

IFRS has no menu of alternatives within full IFRS. Small and medium-sized entities can instead use the separate IFRS for SMEs Accounting Standard, which also amortizes goodwill, over no more than 10 years when its useful life cannot be estimated reliably, and subsidiaries of IFRS groups can keep full IFRS numbers with fewer disclosures under IFRS 19. See IFRS 19 reduced disclosures, IFRS vs US GAAP key differences and IFRS for SMEs explained.

Keep going

Our free Excel models work through the examples in these guides, and the comparisons show where IFRS and US GAAP part ways. Every guide names the Chartered Accountant who wrote it and the one who reviewed it.

All private company alternatives guides Free Excel models

Questions people ask

What are private company alternatives in US GAAP?

Elective accounting methods, developed by the Private Company Council and endorsed by the FASB, that entities other than public business entities may use to simplify areas such as goodwill, intangibles, swaps, VIEs and leases.

Can private companies amortize goodwill under US GAAP?

Yes. Under ASU 2014-02 a private company may amortize goodwill straight-line over up to 10 years and test it for impairment only when a triggering event occurs.

Who cannot use the private company alternatives?

Public business entities, including companies whose financial statements are included in another company's SEC filing.

What happens to private company alternatives on an IPO?

A company that becomes a public business entity must stop using them and generally restate its financial statements as if it had never elected them.

Sources

The standards, updates and other documents this guide draws on.

  1. Financial Accounting Standards Board: Accounting Standards Codification
  2. Financial Accounting Standards Board
  3. Deloitte DART: Accounting alternatives for private companies and not-for-profit entities
  4. Texas Society of CPAs: Private company accounting alternatives and practical expedients
  5. Deloitte DART: FASB amends guidance on credit losses for accounts receivable and contract assets (ASU 2025-05)

Rules and fees change. If you are reading this long after October 26, 2026, confirm the figures with the source before you rely on them.

ASC 350The private company alternative for goodwillASC 805 and 810Variable interest entities under ASC 810ASC 842Discount rates under ASC 842, including the risk-free rate election

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This guide is general information. It is not tax or legal advice for your situation.