Substance over form is an accounting concept which means that the economic substance of transactions and events must be recorded in the financial statements rather than just their legal form in order to present a true and fair view of the affairs of the entity.
What does substance over form mean?
Substance over form in accounting refers to a concept that transactions recorded in the financial statements and accompanying disclosures of a company must reflect their economic substance rather than their legal form. ... At certain times the 'legal form'' of a transaction may not provide its true image.
What are examples of substance over form?
Examples of substance over form issues are as follows:
- Company A is essentially an agent for Company B, and so should only record a sale on behalf of Company B in the amount of the related commission. ...
- Company C hides debt liabilities in related entities, so that the debt does not appear on its balance sheet.
