Your lender asked for GAAP financial statements, so your CPA quoted you a fee that made you flinch — and half of that fee pays for accounting work nobody will ever read. The annual goodwill impairment test on the acquisition you made five years ago? Your banker ignores goodwill entirely when sizing your loan. The fair-value model for your plain interest-rate swap? It exists to inform public investors you do not have. The consolidation of the LLC that owns your building and leases it back to you? Your lender will ask your CPA to back it out so they can underwrite the operating company alone.
This is exactly the problem the Private Company Council was created to solve. Since 2014, U.S. GAAP has contained official simplifications — called private company alternatives — that let qualifying businesses skip the most expensive, least useful parts of big-company accounting while still calling their statements GAAP. They cost nothing to elect, they can be adopted at any time, and most small businesses that qualify have never heard of them.
What the Private Company Council Is (and Why "Little GAAP" Exists)
The Financial Accounting Foundation created the Private Company Council (PCC) in 2012 after years of complaints from private-company accountants. The story was always the same: FASB wrote rules for public companies with large accounting staffs and sophisticated systems, and small private companies had to comply with the same rules to produce statements whose only reader was a bank loan officer.
The PCC advises FASB on where GAAP can offer private companies a simpler path without losing information their statement users actually rely on. When FASB endorses a PCC recommendation, it becomes an Accounting Standards Update — real GAAP, not a departure from it. Your statements can still say "prepared in accordance with U.S. GAAP," which is what your loan agreement requires.
Two facts make these alternatives unusually easy to adopt. First, in 2016 FASB eliminated the effective dates for the original four alternatives, so there is no adoption window to miss — you can elect them for the first time in any current or future period. Second, each alternative is independent (with one pairing exception below), so you adopt only the ones that save you money.
Election 1: Amortize Goodwill Instead of Testing It Every Year
The standard: ASU 2014-02, Intangibles — Goodwill and Other (Topic 350).
Under regular GAAP, goodwill from an acquisition sits on your balance sheet at its original amount indefinitely, and you test it for impairment every single year. That annual test means valuation work — discounted cash flows, market multiples, documentation your auditor can defend. For a small business, the test routinely costs more than the information is worth, because private-company lenders told the PCC plainly that they disregard goodwill and goodwill impairment when analyzing financial strength.
The private company alternative flips the model:
- Amortize goodwill on a straight line over 10 years. You may use a shorter life if you can demonstrate a more appropriate one, but 10 years is the default and needs no justification.
- Test for impairment only when a triggering event occurs. No annual test. You evaluate goodwill at either the entity level or the reporting-unit level — your choice — and only when something suggests fair value may have fallen below carrying amount.
- Triggering events are common-sense business deterioration: worsening economic conditions, a shrinking market for your products, regulatory setbacks, rising input costs, declining cash flows or revenue, key personnel changes, or a sustained drop in share price.
Because amortization steadily shrinks the goodwill balance, the chance of ever recording an impairment falls with each passing year. The result is lower accounting fees, no annual valuation exercise, and statements your lender reads the same way.
The one catch: watch your debt covenants
Amortization expense reduces reported net income and equity every year. If your loan agreement has covenants tied to net worth, leverage ratios, or debt-service coverage computed from GAAP numbers, electing goodwill amortization can move those ratios in the wrong direction. Talk to your lender before you elect — most will amend the covenant definition to add back the non-cash amortization, but get that agreement before your CPA issues the statements, not after a covenant violation letter arrives.
Election 2: Simplified Hedge Accounting for Plain Interest-Rate Swaps
The standard: ASU 2014-03, Derivatives and Hedging (Topic 815). Available to private companies other than financial institutions.
Many small businesses cannot get fixed-rate financing directly, so they borrow at a variable rate and pair the loan with a receive-variable, pay-fixed interest rate swap — economically converting floating debt into fixed debt. Under regular GAAP, that swap is a derivative that must be carried at fair value with complex hedge-effectiveness testing, or else its swings run through your income statement and make earnings lurch every quarter.
The simplified hedge accounting approach lets you account for a qualifying "plain-vanilla" swap in a way that matches its economics:
- Measure the swap at settlement value rather than fair value. Settlement value — what you would pay or receive to terminate the swap today — is far easier and cheaper to determine than a full fair-value measurement.
- Assume the hedge is fully effective. No ongoing effectiveness testing as long as the qualifying conditions continue to be met.
- Report interest expense as if you had borrowed at a fixed rate. Your income statement shows stable interest cost, which is the entire business reason you entered the swap.
To qualify, the swap and the borrowing must be closely aligned: the variable leg and the debt reference the same index and reset period, the swap's notional amount does not exceed the debt principal, the swap starts within a few days of debt issuance, and the terms contain no exotic features like floors, caps, or leverage factors. The election is made swap by swap, so one qualifying swap does not commit the treatment of any other derivative you hold.
Election 3: Skip Consolidating Entities Under Common Control
The standard: ASU 2014-07 as expanded and superseded by ASU 2018-17, Consolidation (Topic 810).
This is the alternative with the most day-to-day value for owner-operated businesses. A classic structure: you own an operating company and, separately, an LLC that owns your building and leases it back to the business. The side entity exists for liability protection, estate planning, or tax reasons — not to hide debt. But variable-interest-entity (VIE) rules often force you to consolidate the lessor entity into your operating company's statements, producing combined financials that describe neither business clearly.
Worse, lenders routinely ask for the VIE to be backed out so they can underwrite the operating company on its own. You were paying your CPA to consolidate an entity just so your banker could de-consolidate it.
The alternative lets a private company elect not to apply VIE guidance to qualifying common-control arrangements:
- The original 2014 version covered common-control leasing arrangements only: lessee and lessor under common control, a lease between them, substantially all activity between them related to leasing, and any guaranteed lessor debt limited relative to the leased asset.
- ASU 2018-17 expanded the relief to all qualifying common-control arrangements, not just leases. If the reporting entity and the legal entity are under common control (and not controlled by a public company), meet the criteria, and the election is made, no consolidation is required.
The election applies to all current and future qualifying VIEs — you cannot pick and choose entity by entity. In place of consolidation, you provide disclosures about your exposure: the amounts and key terms of VIE liabilities you could be responsible for and the circumstances under which you would have to support the entity. Those disclosures, combined with your normal guarantee, lease, and related-party notes, give lenders the risk picture in one readable note instead of buried inside consolidated totals.
Election 4: Fold Certain Intangibles Into Goodwill After an Acquisition
The standard: ASU 2014-18, Business Combinations (Topic 805).
When you buy a business under regular GAAP, you must separately identify and fair-value every intangible asset you acquired — customer relationships, order backlogs, noncompete agreements, trade names — each one a mini-valuation engagement. The PCC found that for two specific categories, buyers paid valuation fees for numbers their statement users promptly ignored:
- Customer-related intangibles that cannot be sold or licensed separately from the rest of the business, and
- Noncompetition agreements.
The alternative lets you skip separately recognizing and measuring those two categories and instead include their value in goodwill. Everything else acquired — intangibles that are separable, like a patent or a brand you could license — is still recognized separately at fair value.
There is one structural catch, and it runs in only one direction: if you elect the intangibles alternative, you must also elect the goodwill amortization alternative (Election 1). The logic is straightforward — the intangibles you folded into goodwill need to be amortized along with it rather than carried forever. The reverse is not required: you may amortize goodwill without touching the intangibles election.
Since ASU 2019-06, not-for-profit entities may elect the goodwill and intangibles alternatives as well.
Newer Simplifications Worth Knowing
The PCC pipeline did not stop in 2014. Depending on your situation, three later additions may matter as much as the original four:
- Share-based awards (ASU 2021-07). Private companies can use a 409A valuation as the current share price when valuing equity-classified stock compensation, instead of commissioning a separate fair-value measurement for each grant. If you grant options to employees, this one saves a fee every grant cycle.
- Goodwill triggering-event timing (ASU 2021-03). You may evaluate whether a triggering event occurred as of the end of each reporting period, rather than monitoring continuously between reporting dates. Goodwill gets assessed when you close the books — not via a standing obligation to watch for impairment signals mid-quarter.
- Franchisor revenue (ASU 2021-02). Private franchisors get a practical expedient for identifying performance obligations in initial franchise fees, simplifying revenue recognition for franchise systems.
FASB has also kept the door open on broader goodwill reform but has so far retained the impairment-only model for public companies — which means the amortization election remains a private-company-only advantage for the foreseeable future.
How to Adopt (Without Creating a Bigger Problem)
Electing an alternative is an accounting policy choice, and like any policy choice it should be deliberate. Work through this sequence with your CPA:
- Start with the users, not the standards. The only question that matters is whether your lender, surety, or investors accept the alternative. Most do — these are mainstream elections, and bank credit policies increasingly reference them explicitly — but confirm before your CPA changes anything.
- Model the covenant impact. Goodwill amortization lowers earnings and equity; de-consolidating a VIE removes assets and liabilities from the balance sheet. Recompute every covenant ratio under the new policies and get written covenant amendments where needed.
- Disclose the elections. Each alternative carries disclosure requirements — the nature of the election, and for VIEs the exposure information described above. An undisclosed election is a GAAP departure, which defeats the purpose.
- Apply consistently going forward. The VIE election covers all qualifying entities, current and future. Document each policy choice in your financial statement notes so a future auditor or buyer sees a deliberate policy, not an error.
- Remember the buyer problem. If you sell to a public company, the acquirer will unwind your private-company elections in purchase accounting — your amortized goodwill and unconsolidated VIEs get restated to public-company GAAP on their books. That is their cost, not a reason to avoid the elections while you are private, but do not be surprised when diligence asks for the reconciliation.
Common Mistakes That Undo the Savings
- Electing the intangibles alternative without amortizing goodwill. The standards forbid this combination. Your CPA should catch it, but confirm both elections are documented together.
- Treating the VIE election as entity-by-entity. It is all qualifying VIEs or none. Cherry-picking the building LLC while consolidating a sister sales entity is not permitted.
- Skipping the replacement disclosures. The VIE and swap alternatives trade recognition complexity for disclosure. Thin footnotes invite audit adjustments that cost more than the consolidation ever did.
- Forgetting the tax books are separate. These are GAAP financial-reporting elections. Your tax depreciation, amortization, and entity structure follow the tax code, not ASC 350 or ASC 810. Keep a clear book-to-tax reconciliation so the two treatments never get mixed.
- Assuming silence means consent. Adopting mid-loan without telling your lender, then delivering statements that look different from last year's, is how routine elections turn into covenant defaults. A short memo to the loan officer before year-end costs nothing.
Keep Your Financial Reporting Simple and Auditable
The PCC alternatives share one philosophy with good bookkeeping: track what matters to the decisions in front of you, and stop paying for precision nobody uses. Whether you amortize goodwill over ten years or test it annually, the discipline underneath is the same — complete records, consistent policies, and statements you can explain to a lender line by line.
Beancount.io gives you that foundation with plain-text accounting that is transparent, version-controlled, and AI-ready — every policy choice visible in the file, every number traceable to its source. Get started for free and see why developers and finance professionals are switching to plain-text accounting. For hands-on guidance, the documentation walks through ledgers, reports, and visualizations step by step.
