Under the private company alternative method of goodwill accounting in U.S. GAAP, how is goodwill amortized?

Under the private company alternative method of goodwill accounting in U.S. GAAP, goodwill is amortized using straight-line amortization over a period of 10 years or less. This method was introduced as part of the Financial Accounting Standards Board (FASB) Accounting Standards Update specifically aimed at providing private companies with a simplified approach to accounting for goodwill.

The choice of an amortization period up to 10 years reflects the intention to provide a reasonable time frame for recognizing the expense related to the goodwill acquired, while also allowing for the flexibility to choose any period that the company determines within that limit. This is notably different from public companies, which generally test goodwill for impairment at least annually and do not amortize goodwill.

This approach is beneficial for private companies, as it reduces the complexity of regular impairment testing while still acknowledging that goodwill does have a finite value that can be systematically amortized. By utilizing straight-line amortization, private companies can also more readily predict and account for the impact of goodwill on their financial statements over time.