All companies while preparing financial statements, are required to follow a standard and best possible guideline. If different concerns adopt different methods in their preparation, then it will be impossible to compare one firm’s performance with other. Different interested groups (known as stakeholders) like investors, customers, owners, financiers etc. will fail to use them properly.

In order to overcome this limitation, financial accounting standard board ‘FASB’ has framed some guidelines. All companies have to follow them and prepare statements for reporting.