Substance over form

Abstract

In Chapter 7 we looked at ideas of forming a general and all-embracing framework. There and elsewhere since we have come across the concept of substance over form. This is the idea that a transaction should be treated for accounting purposes in accordance with its underlying commercial substance, even if this means ignoring or going against its technical legal form. The ASC have been moving gradually further down this road in recent years, generally supported by international accounting thinking (but less supported by European accounting thinking). The most clear-cut signal of the direction in which the ASC is moving is given by ED 42, ‘Accounting for Special Purpose Transactions’, issued in 1988. This is in some ways a curious hybrid. As mentioned in Chapter 7 it has elements in common with the suggested general framework. But it does not go nearly as far and it also has its own defined targets like other EDs and SSAPs.