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Explain what you understand by the term 'substance over form'. Is it appropriate that this concept should be used as a guide in setting accounting standards?
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Explain what you understand by the term 'substance over form'. Is it appropriate that this concept should be used as a guide in setting accounting standards? Introduction The overriding requirement of a company's financial statements is that they should present a true and fair view, and represent faithfully the underlying transactions and other events that have occurred. To achieve this, transactions are required to be accounted for in terms of their 'substance' or commercial reality rather than their legal form. This principle is introduced in the Accounting Standard Board 'Statement of Principle for Financial Reporting', and also in many standards, in particular Financial Reporting Standard No. 5 (FRS 5), "Reporting the Substance of Transactions" and SSAP 21 'Accounting for Leases and Hire Purchase Contracts'. To understand the term 'substance over form' (henceforth SOF) properly, this essay firstly describes briefly what is mean by the 'substance' of a transaction and how to determine 'substance'....
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