A company usually has a legal department that reviews this information. Accountants prefer the bottom line, that is whether the business made a profit. Attempting to satisfy both legal and financial aspects under substance over form is too cumbersome for accountants. Substance over form is an accounting principle used "to ensure that financial statements give a complete, relevant, and accurate picture of transactions and events".
It is particularly relevant in cases of revenue recognition, sale and purchase agreements, etc. The key point of the concept is that a transaction should not be recorded in such a manner as to hide the true intent of the transaction, which would mislead the readers of a company's financial statements.
As Fischer et al. The substance over form concept is easy to grasp but many stakeholders find it odd because this certain concept challenges the legal form of a transaction and substitutes it with the economic form.
Although the legal form can be of importance, it may be disregarded in order to present more relevant knowledge to the users of financial statements, who should not be misled.
Whoever prepares the financial statements of a company needs to use their judgement to derive the business sense from the transactions and events in order to present them in a manner that best reflects their true essence. The doctrine of 'Substance over form' refers to the concept that states that the transactions recorded in the financial statements and the disclosures It states that the real form of the transaction should be recorded in the financial statement.
