The decision to elect one or both PCC accounting alternatives at close can reduce the cost and complexity of the audit review process — or create significant restatement risk at exit. The outcome depends entirely on how the elections align with the sponsor's hold period and exit thesis.

When a PE-backed portfolio company completes an acquisition, one of the first and most consequential accounting decisions it faces is whether to elect one or both of the Private Company Council (PCC) accounting alternatives under ASC 805 and ASC 350. These elections, which simplify how intangible assets and goodwill are recognized and measured in a business combination, can meaningfully reduce the cost and complexity of the audit review of purchase price allocation work. But they also introduce trade-offs that sponsors, portfolio company management teams, and their advisors must carefully evaluate before proceeding — particularly in light of the expected exit path and hold period.

What Are the PCC Elections for Private Company Acquisitions?

The Private Company Council was established in 2012 by the Financial Accounting Foundation to identify areas where U.S. GAAP could be modified specifically for private companies. Between 2014 and 2016, the PCC developed four major accounting alternatives, all endorsed by FASB and integrated into the Accounting Standards Codification. Two of these alternatives relate directly to business combinations and have significant implications for purchase price allocations. Importantly, these are two distinct elections — a private company may elect ASU 2014-02 without electing ASU 2014-18, but a company that elects ASU 2014-18 is required to also adopt ASU 2014-02:

ASU 2014-02 — Goodwill Accounting Alternative (ASC 350).
This update permits private companies to amortize goodwill on a straight-line basis over a useful life of up to 10 years, rather than carrying it indefinitely and testing for impairment annually. The alternative also replaces the annual impairment test with a trigger-based model, requiring impairment testing only when a triggering event occurs. This election may be made on a standalone basis, independent of ASU 2014-18.

ASU 2014-18 — Intangible Assets Alternative (ASC 805).
This update allows private companies to elect not to separately recognize and measure customer-related intangible assets (unless they can be sold or licensed independently from other assets of the business) and noncompetition agreements. Instead, the values of these assets are subsumed into goodwill. A company electing ASU 2014-18 must also adopt ASU 2014-02 — the two elections are linked in this direction, but not the reverse.

Advantages of the PCC Elections

Reduced Audit Review Scope and Cost.
The most immediate benefit is a reduction in the scope and cost of the audit review of the purchase price allocation. Under full GAAP, the acquirer must identify and separately value all intangible assets that meet the separability or contractual-legal criteria. The PCC intangible assets alternative eliminates the requirement to separately value customer-related intangibles (unless independently saleable) and noncompetition agreements, allowing those values to be subsumed into goodwill. This reduces the number of discrete intangible asset valuations subject to audit review and shortens the timeline for completing the PPA.

Simplified Ongoing Accounting.
Under the goodwill amortization alternative, private companies amortize goodwill on a predictable straight-line basis over 10 years. This eliminates the need for annual impairment testing — a process that itself requires a business valuation each year — and replaces it with a simpler trigger-based model. The resulting predictability in earnings patterns is attractive to portfolio company management teams, sponsors, and lenders who prefer consistency in reported financial performance.

Lower Ongoing Audit and Compliance Costs.
By reducing the number of separately recognized intangible assets and eliminating annual impairment testing, the PCC election can materially lower the recurring costs of audit review and financial reporting compliance. Companies that make frequent acquisitions as part of a buy-and-build strategy stand to benefit the most, as each additional acquisition would otherwise require its own full-scope PPA and annual impairment analysis subject to audit.

Cleaner Financial Statements.
Subsuming certain intangible assets into goodwill simplifies the balance sheet and footnote disclosures. For portfolio company stakeholders — particularly lenders and minority co-investors — the resulting financial statements can be easier to interpret and analyze, with fewer line items requiring explanation.

Disadvantages and Risks of the PCC Elections

Potential Restatement Risk at Exit.
This is the single most significant risk for PE-backed companies. The PCC alternatives are not available to public business entities. If a portfolio company that has elected the PCC alternatives later pursues an IPO or is acquired by a public company, it may be required to unwind the election and restate prior-period financial statements under full GAAP. This means retroactively determining the acquisition-date fair value of customer relationships and noncompetition agreements that were previously subsumed into goodwill — a process that is both costly and time-consuming, particularly if the original transaction occurred years earlier and supporting data has become stale or unavailable.

For PE sponsors, the key variable is the expected hold period and most likely exit path. A sponsor planning a five-year hold with a sale to a strategic private buyer should weigh the PCC election differently than one pursuing a three-year hold targeting an IPO or a sale to a public acquirer. When the most probable exit involves a public buyer or a public offering, full GAAP compliance from day one avoids the cost and disruption of future restatements. When the exit is likely a sale to another private buyer or sponsor, the PCC election's cost savings may be realized without restatement risk.

Larger Potential Impairment Charges.
Because the PCC election results in a larger goodwill balance (since customer-related intangibles and noncompetes are subsumed into it), any future impairment charge may be disproportionately large. Under full GAAP, the amortization of separately identified intangible assets over their useful lives would have naturally reduced the carrying value over time. Under the PCC election, the entire goodwill balance amortizes over a single 10-year period, and a triggering event during that window could result in a larger write-down than would otherwise have occurred.

Reduced Transparency for Sophisticated Stakeholders.
Certain external stakeholders — particularly institutional investors, PE firms conducting due diligence on a secondary transaction, and prospective strategic buyers — may prefer or require full GAAP financial statements for comparability and analysis purposes. The PCC election can make it more difficult for these parties to understand the composition of acquired intangible assets and assess the true economic value of prior acquisitions. In competitive sell-side processes, this lack of transparency can slow due diligence or create valuation friction.

Tax Implications Require Careful Coordination.
The PCC election affects financial reporting but does not change the tax treatment of acquired assets. For tax purposes, the allocation of purchase price to identifiable intangible assets under IRC Section 197 or Section 1060 remains the same regardless of whether the PCC election is made for book purposes. Companies must ensure that their tax advisors and valuation professionals coordinate the financial reporting and tax allocations, as the PCC election can create book-tax differences that require careful tracking of deferred tax assets and liabilities.

Irrevocability and Consistency Requirements.
Once a private company elects the intangible assets alternative under ASU 2014-18, it must apply the election consistently to all subsequent business combinations within scope. The election cannot be selectively applied to some acquisitions but not others. The same consistency requirement applies if ASU 2014-02 is elected on a standalone basis — goodwill amortization must be applied to all existing and future goodwill. Companies that anticipate different strategic paths for different business units or subsidiaries should consider these constraints carefully.

The Portfolio-Wide Decision: Consistency Across Acquisitions and Elections

For PE sponsors managing multiple portfolio companies — or portfolio companies executing serial add-on acquisitions — the PCC election is not just a deal-by-deal decision. Because the election must be applied consistently once adopted, sponsors should develop a clear policy framework at the portfolio level rather than evaluating each acquisition in isolation.

Considerations include whether all portfolio companies share the same likely exit profile (private-to-private versus IPO-ready), whether the sponsor's lender group has expressed a preference for full GAAP or accepts PCC-basis financials, and whether consolidated reporting requires comparability across portfolio companies. A sponsor with portfolio companies applying a mix of PCC and full GAAP faces unnecessary complexity at reporting time and at exit.

The most efficient approach is to establish the election policy early in the fund's life cycle, aligned with the fund's predominant exit strategy, and apply it consistently across new platform and add-on acquisitions.

Side-by-Side: PCC Elections vs. Full GAAP

Conclusion

The PCC elections are powerful tools for private companies seeking to streamline acquisition accounting, but they are not a universal solution. The decision to elect — or not to elect — one or both alternatives carries implications that extend well beyond the initial PPA, affecting future financial reporting, exit optionality, stakeholder perception, and ongoing compliance costs. For PE-backed companies, each election should be evaluated in the context of the sponsor's hold period, exit thesis, and portfolio-wide reporting strategy, with input from valuation advisors, auditors, and legal counsel.