The necessity of the principle of substance over form

Trends in the internationalization of accounting standards.

After China's accession to the WTO, China's economic exchanges with the international economy have deepened, and it has put forward inevitable requirements for the internationalization of accounting standards. In today's world economic integration, the expansion of international and international capital markets, and international accounting standards will affect the scale and trend of economic development in countries around the world. If China wants to join the international capital market and participate in international competition, it must provide true, fair and comparable accounting information to international investors and creditors in accordance with international practices.

Complicating factors.

First of all, due to the deepening of reform and opening up, the diversified development of enterprise forms has put forward different requirements for accounting and accounting information disclosure. Secondly, with the deepening of the market economy, the capital market, the first market and other emerging markets have gradually developed, and some new businesses such as investment, mergers and acquisitions have emerged, and the uncertainty of accounting objects has increased. The complexity of a company's economic operations requires companies to choose between different accounting principles, methods and procedures when conducting accounting treatment.

Accountants can make judgments and processes according to the nature, substance and results of the transaction.

Defects in the original standards and systems.

The financial accounting system formulated in the initial stage of China's market economy has considerable limitations, and the system of accounting standards is not perfect. Some of the accounting policies and accounting estimates stipulated in the original system are no longer suitable for the needs of the actual situation of the enterprise, resulting in the lack of reliability of the various accounting elements reflected by the enterprise.

Substance over form: An accounting principle that embodies "truth and fairness".

1.Substance over form: Substance over form requires that enterprises should recognize, measure and report on the economic substance of the transaction or event, and should not be based solely on the legal form of the transaction or event.

2.For example, although the enterprise does not have the ownership of the assets leased in the form of financial lease, the lease period stipulated in the lease contract is quite long, which is close to the useful life of the asset. At the end of the lease term, the lessee has the option of first refusal to purchase the asset; During the lease period, the lessee has the right to dispose of the assets and benefit from them, so from the perspective of its economic substance, the assets leased in the form of financial lease should be regarded as the assets of the enterprise and included in the balance sheet of the enterprise in terms of accounting recognition, measurement and reporting.

The principle of substance over form is a theoretical system in which enterprises should conduct accounting according to the economic substance of transactions or events.

In practice, since the external or artificial form of a transaction or event cannot fully and truly reflect its substance, the transactions or events to be reflected in the accounting information must be accounted for according to the economic reality of the substantive and flawed transactions or events, rather than according to their legal form.

The principle of substance over form belongs to the content of accounting information quality requirements, which include reliability, relevance, comprehensibility, comparability, substance over form, importance, prudence and timeliness. The quality requirements of accounting information are the basic requirements for the quality of accounting information provided in the financial reports of the company.

1. The principle of substance over form means that enterprises should conduct accounting according to the economic substance of transactions or events, and should not only use their legal form as the basis for accounting. In practice, the foreign Minchang of Xunnahail transactions or matters cannot fully and truly reflect its essence in the form or artificial form of Mu Fan. Therefore, the transactions or events that are intended to be reflected in the accounting information must be accounted for in accordance with the material and economic realities of the transactions or events, and not in accordance with their legal form.

2. The meaning of "substance over form": The second paragraph of Article 11 of the Accounting System for Business Enterprises stipulates that enterprises should conduct accounting in accordance with the economic substance of transactions or events, and should not only use their legal form as the basis for accounting.

(substance

overform

principle) means that enterprises should account for transactions or events based on their economic substance, and should not only be based on their legal form.

Listed company A is the second largest shareholder of Shanghai X Company and does not have an absolute controlling stake in Shanghai X Company, while listed company B is the largest shareholder of Shanghai X Company and has absolute control over Shanghai X Company. However, according to the articles of association and the relevant resolutions of the board of directors, listed company A has the right to operate and manage Shanghai X Company, and is responsible for appointing and recommending senior management personnel and financial leaders.

In this case, Listed Company A has acquired control of the financial and operational policies of Shanghai X Company, making Shanghai X Company a de facto subsidiary. Therefore, in terms of accounting treatment, the equity method should be used for the equity measurement of listed company A; When preparing the consolidated financial statements, listed company A should include Shanghai X company in the scope of consolidation.

The above cases show that in reality, substantial control may not be in the hands of the largest shareholder. If, according to the articles of association or agreement, the second largest shareholder has the right to control the financial and operational decisions of the subsidiary, and has the right to determine its future direction, even the second largest shareholder has substantial control over the subsidiary. In this case, the subsidiary should be included in the preparation of its consolidated financial statements.

Extended Information: Attention:

First, when there is a conflict between the accounting treatment method chosen by the principle of substance over form and other accounting principles, the professional judgment of the auditor should be based on the standard that can objectively, fairly and comprehensively reflect the production and operation of the enterprise, and strive to provide more relevant and reliable accounting information to the users of the accounting statements.

Second, don't focus too much on substance and abandon form. The principle of substance over form is a very important principle to ensure the quality and reliability of accounting information, but in the general principles of accounting, the dominant principle is objectivity, relevance, comparability, consistency, timeliness, clarity and other ten principles, and the three principles of substance over form, prudence and importance are supplements and amendments to the other ten principles. Therefore, the principle of substance over form should not be overemphasized.

Third, some enterprises take advantage of the subjectivity of the principle of substance over form, turning the principle of substance over form into a tool for whitewashing accounting statements and a "shield" for engaging in violations of laws and regulations. When auditing consolidated accounting statements, auditors should pay attention to whether the principle of substance over form applied by the enterprise violates the provisions of laws and administrative regulations.