Financial Reporting Requirements for Small Private Companies in the United States

Small private companies in the United States are not legally required to follow U.S. GAAP unless it is imposed by lenders, investors, or contractual agreements.
However, many companies choose to prepare structured financial statements to ensure transparency, support financing needs, and maintain sound internal financial management.

The following overview summarizes the classic financial reporting requirements for small private enterprises based on official U.S. accounting authorities.

Regulatory Context

Financial reporting standards in the U.S. are established by the
Financial Accounting Standards Board (FASB),
which issues U.S. Generally Accepted Accounting Principles (GAAP).

While GAAP is mandatory for public companies, private companies may adopt GAAP voluntarily or use alternative bases of accounting (e.g., tax-basis or cash-basis), unless external stakeholders require otherwise.

The foundational description of GAAP and its governance is provided by the
Financial Accounting Foundation (FAF), the oversight body responsible for FASB.

Core Financial Statements Small Private Companies Commonly Prepare

Even though the law does not mandate audited GAAP financial statements for private companies, the business community follows a well-established set of reports that provide an accurate financial picture. These are recognized in FASB’s conceptual framework and longstanding GAAP practice.

1 Balance Sheet (Statement of Financial Position)

The balance sheet presents the company’s assets, liabilities, and equity at a specific date.
Its structure and definition follow the FASB conceptual definitions of assets, liabilities, and equity, as outlined in the FASB Conceptual Framework.

2 Income Statement (Statement of Earnings)

This report shows revenues, expenses, and net income for a financial period.
It is grounded in GAAP revenue and expense recognition principles, as published in authoritative FASB Accounting Standards Codification (ASC) topics.

3 Statement of Cash Flows

Although not legally required for all private companies, the statement of cash flows is standard practice when companies follow GAAP.
It presents operating, investing, and financing cash movements and follows the requirements of FASB ASC Topic 230 (Statement of Cash Flows).

4 Statement of Changes in Equity

This statement summarizes owner contributions, distributions, and retained earnings changes across the reporting period.
Its structure follows GAAP presentation guidance as provided in several ASC topics covering equity and financial statement presentation.

5 Notes to the Financial Statements

Notes provide essential context, accounting policies, and required disclosures under GAAP or any chosen accounting basis.
The requirement for adequate disclosure is rooted in the FASB’s disclosure framework and the GAAP principle of presenting financial statements fairly.

Why Small Private Companies Prepare These Statements

• Bank and lender requirements — Many lenders require GAAP or GAAP-based financial statements for loan underwriting.
• Investor expectations — Even small equity holders often request structured statements.
• Internal decision-making — Owners and management rely on formal reporting for budgeting, forecasting, and operational control.
• Credibility — GAAP-aligned statements enhance trust with partners, suppliers, and potential investors.

Allowed Accounting Frameworks for Small Private Companies

According to guidance published by the Financial Accounting Foundation and FASB’s Private Company Council (PCC), private companies may:

• Use full U.S. GAAP
• Use GAAP with PCC alternatives (simplified standards for private entities)
• Use other bases of accounting such as tax-basis or cash-basis (commonly accepted for privately held firms)

The flexibility exists because private companies are not subject to SEC reporting rules.
This distinction is documented in materials published by the FAF and FASB on private company reporting considerations.

Summary

Small private companies in the United States do not face statutory requirements to produce GAAP financial statements, yet many do so voluntarily or at the request of external stakeholders.

The classic set of financial statements — balance sheet, income statement, statement of cash flows, statement of changes in equity, and accompanying notes — derives from official FASB financial reporting principles and continues to represent best practice for reliable financial communication.

M. Spik

Editor
25 years of experience managing tax, accounting, payroll, and employment-related information portals. Editor of Accounting Portal since 2011.
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