What is substance over form?

Substance over form is a principle in accounting that emphasizes the economic reality of a transaction rather than its legal form. This means that the true economic substance of a transaction should be reflected in the financial statements, even if the legal form of the transaction may suggest otherwise. This principle helps to ensure that financial statements provide a true and fair view of an entity's financial position and performance.

Substance over form is a legal doctrine that states that the true nature of a transaction should be considered, rather than just its form. This doctrine is based on the principle that the intent of the parties to a transaction is more important than the way in which the transaction is structured.

For example, a court may apply the substance over form doctrine to determine whether a sale of property is actually a loan. If the court finds that the substance of the transaction is a loan, then it will apply the law of loans to the transaction, even though the parties have structured the transaction as a sale.

The substance over form doctrine can be used to prevent parties from using legal loopholes to avoid their obligations. It can also be used to ensure that the parties to a transaction are treated fairly.