What’s New in US Accounting Standards for Private Companies (2025 Update)

Small private companies in the United States are not required to file Exchange Act reports such as Forms 10-K and 10-Q with the U.S. Securities and Exchange Commission (SEC). Those forms apply to public companies that are registered under the federal securities laws and must provide ongoing annual and quarterly reports to the SEC and investors. Instead, most small private companies focus on producing financial statements that satisfy owners, lenders and other stakeholders, and that comply with U.S. Generally Accepted Accounting Principles (U.S. GAAP) where required.

Even though private companies are not SEC registrants, they are still affected by new standards issued by the Financial Accounting Standards Board (FASB). In recent years the FASB, together with its Private Company Council (PCC), has issued targeted updates that are particularly relevant to private entities, including small businesses. This article summarizes key FASB updates issued in 2025 that matter for private companies and explains how they fit into the broader private-company reporting framework.

How FASB and the PCC address private-company reporting

FASB, U.S. GAAP and the Private Company Council

The FASB is the independent standard setter that establishes U.S. GAAP for public and private entities. The FASB operates under the oversight of the Financial Accounting Foundation and issues Accounting Standards Updates (ASUs) that amend the FASB Accounting Standards Codification. To ensure that private-company perspectives are considered, the FASB is advised by the Private Company Council (PCC), which focuses on the needs of users of private-company financial statements and recommends alternatives within GAAP where appropriate.

According to the FASB’s description of its structure and advisory groups, the PCC uses a dedicated framework to advise the FASB on recognition, measurement, disclosure, display, effective date and transition guidance for private companies. That framework is described in the publication “Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies”. The guide explains how the Board and the PCC evaluate whether private companies should have different or simplified requirements compared to public business entities.

Private-company alternatives within U.S. GAAP

Over time, the FASB and PCC have used the private-company framework to introduce specific alternatives within GAAP. Examples include simplified accounting for certain goodwill, interest rate swaps and other topics for entities that are not public business entities. These alternatives are still part of U.S. GAAP but are tailored to the typical users and cost–benefit considerations of private-company reporting.

The 2025 updates discussed in this article continue that pattern: they do not create a separate private-company GAAP, but they respond directly to issues raised by private-company stakeholders about cost, complexity and decision usefulness of information.

New FASB guidance on credit losses affecting private companies

Background: Topic 326 and private companies

Topic 326 in the FASB Accounting Standards Codification, Financial Instruments—Credit Losses, introduced the current expected credit loss (CECL) model for measuring credit losses on financial assets such as trade receivables and certain contract assets. The CECL model applies to both public and private entities, but many private companies have expressed concerns about the cost and complexity of applying the model to short-term receivables and contract assets arising from revenue transactions.

In response, the FASB and the PCC added a project focused specifically on improving the application of Topic 326 for private companies and certain not-for-profit entities, especially for accounts receivable and contract assets arising under Topic 606, Revenue from Contracts with Customers.

Accounting Standards Update 2025-05: targeted improvements for private companies

On July 30, 2025, the FASB issued Accounting Standards Update 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets for Private Companies and Certain Not-for-Profit Entities. The FASB describes this ASU as a targeted improvement intended to address challenges that private companies and certain not-for-profit entities face in applying the CECL model to short-term receivables and contract assets.

According to the FASB’s ASU and related news release, the new guidance provides an optional practical expedient that allows eligible entities to simplify how they estimate expected credit losses for current trade receivables and contract assets. In particular, the expedient is designed for assets that are short term and that arise from revenue arrangements within the scope of Topic 606. Rather than requiring detailed forecasts of future economic conditions for each pool of receivables, the expedient allows entities to base their estimates on historical loss information adjusted for reasonable and supportable current conditions, in a manner that is less complex yet consistent with the CECL principles.

The FASB notes that this practical expedient is intended to preserve decision-useful information while reducing the cost and operational burden for private companies that have straightforward portfolios of trade receivables and contract assets. For many small private companies that sell on credit, this ASU can make the allowance for credit losses more manageable without changing the underlying model in a fundamental way.

Accounting Standards Update 2025-08: purchased loans

In November 2025, the FASB issued Accounting Standards Update 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans. This ASU addresses the accounting for certain purchased financial assets and clarifies when entities must apply the so-called “gross-up” approach under Topic 326.

The FASB’s ASU explains that the amendments apply to all entities subject to Topic 326, including private companies, and are designed to improve the consistency and comparability of accounting for purchased loans. Although many small private operating companies may not be active purchasers of loan portfolios, the guidance can be relevant for private financial institutions or for entities that acquire portfolios of financial assets as part of business combinations or other transactions.

For small private companies that are not financial institutions and that do not regularly acquire loan portfolios, the practical impact of ASU 2025-08 may be limited, but it remains important to understand that Topic 326 continues to evolve and that purchased financial assets are now addressed more explicitly in the Codification.

Effective dates and transition for private entities

The FASB’s effective-date information explains when different entities must adopt new ASUs. For private companies, the effective dates of ASU 2025-05 and ASU 2025-08 are generally later than for public business entities, and early adoption is often permitted. Private entities should consult the FASB’s effective-date table and the specific transition paragraphs in each ASU to determine:

• whether they are within the scope of the new guidance,
• the first annual period for which the new guidance is required, and
• whether early application is allowed and beneficial.

In practice, many small private companies will coordinate adoption with their external accountants or auditors to align the timing with other reporting changes and to avoid unnecessary complexity.

Modernizing accounting for internal-use software

Why internal-use software matters for small private companies

Many private companies invest in internal-use software, such as accounting systems, customer relationship management tools or operational platforms. Under existing guidance in Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software, entities have long distinguished among stages of a software project and capitalized certain costs incurred during the application development stage.

Feedback to the FASB, including from private-company preparers, indicated that the existing guidance did not align well with modern software development practices, such as agile and iterative methods, and that it could be difficult to apply consistently in practice.

Accounting Standards Update 2025-06: internal-use software

On September 18, 2025, the FASB issued Accounting Standards Update 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. In its announcement, the FASB explains that the ASU modernizes accounting for software costs by updating when and how entities capitalize internal-use software costs and by enhancing the related disclosures.

The FASB’s project summary on accounting for and disclosure of software costs describes the main objectives of the ASU. Among other changes, the guidance is designed to:

• better reflect modern software development processes,
• reduce diversity in practice in classifying and capitalizing software costs, and
• provide clearer disclosure requirements about the nature and amount of capitalized software costs.

For small private companies, the impact of ASU 2025-06 will depend on the size and nature of software projects. Entities that develop significant internal-use software should review their capitalization policies and ensure that they align with the updated criteria and disclosure requirements once the ASU becomes effective for private entities.

Effective dates for internal-use software guidance

The FASB’s effective-date listing for Accounting Standards Updates notes that ASU 2025-06 has different effective dates for public business entities and for all other entities. Private companies typically have a later required adoption date and are often permitted to adopt early. Transition guidance in the ASU addresses how entities should treat existing capitalized software costs and in-process projects at the date of adoption.

Small private companies should plan ahead by inventorying their current software projects and capitalized software balances, and by discussing with their CPAs how and when to implement the new standard.

How these updates fit into the broader private-company framework

Relationship to the Private Company Decision-Making Framework

The 2025 updates on credit losses and internal-use software are consistent with the goals of the FASB’s private-company framework. The Private Company Decision-Making Framework emphasizes evaluating whether alternatives for private companies can reduce cost and complexity while still providing decision-useful information for the typical users of private-company financial statements, such as owner-managers and lenders.

ASU 2025-05 directly reflects this approach by offering an optional practical expedient for private companies and certain not-for-profit entities, targeted at short-term receivables and contract assets. ASU 2025-06 responds to feedback from preparers, including private entities, about the operability of internal-use software guidance. Both updates illustrate how the FASB and PCC use stakeholder feedback and the framework to refine GAAP for private-company environments.

Interaction with AICPA frameworks for small- and medium-sized entities

Not all small private companies are required to prepare U.S. GAAP financial statements. For entities that are not subject to GAAP-based reporting requirements, the American Institute of Certified Public Accountants (AICPA) has developed the Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs), which is a special purpose framework aimed at “Main Street” businesses.

The AICPA’s resources, including the article “Financial reporting framework for small and medium size entities” and the full text of the framework accessible via the download page “Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs)”, explain that the FRF for SMEs is intended for entities that do not need GAAP financial statements but still want clear, consistent and cost-effective financial reporting.

Because the FRF for SMEs is a separate framework, FASB Accounting Standards Updates such as ASU 2025-05, ASU 2025-06 and ASU 2025-08 do not automatically apply to entities that prepare financial statements solely under the FRF for SMEs. However, some small private companies may choose to align certain policies with GAAP concepts, or they may transition between frameworks over time. In such cases, an understanding of the new GAAP requirements is still valuable.

Practical steps for small private companies

Determine whether U.S. GAAP applies

The first step for any small private company is to confirm whether U.S. GAAP is the required basis of accounting. Loan agreements, shareholder agreements and other contracts may specify GAAP, while in other situations a special purpose framework such as the FRF for SMEs may be acceptable. This decision determines whether the 2025 FASB updates are mandatory or simply informative.

Assess the impact of new credit loss guidance

Private companies that apply Topic 326 should:

• review their portfolios of trade receivables and contract assets,
• evaluate eligibility for the optional practical expedient in ASU 2025-05, and
• determine whether any purchased financial assets fall within the scope of ASU 2025-08.

For many small private businesses, the main question will be whether electing the ASU 2025-05 practical expedient simplifies allowance calculations while still reflecting expected credit losses in a way that is understandable to lenders and other users of the financial statements.

Review internal-use software projects and policies

Small private companies that develop or significantly customize internal-use software should review:

• their current policy for capitalizing and expensing software development costs,
• the inventory of in-process software projects and existing capitalized balances, and
• the disclosure information they provide about software costs and related amortization.

Working with a CPA or other accounting advisor, management can plan for the adoption of ASU 2025-06 in a way that avoids surprises and aligns the accounting for software costs with how projects are managed operationally.

Coordinate with CPAs and users of the financial statements

Finally, small private companies should coordinate with their external CPAs, lenders and other key users of their financial statements. For entities that undergo audits, reviews or compilations performed in accordance with AICPA professional standards, CPAs will help interpret the FASB updates and recommend timing and transition approaches that are appropriate for the entity’s size and complexity.

By staying informed about FASB updates aimed at private companies and incorporating them into their reporting where required or beneficial, small private companies can improve the clarity and credibility of their financial statements while managing compliance costs effectively.

See also article Financial Reporting Requirements for Small Private Companies in the United States.