What is the principle of substance over form?

First of all, it should be clarified that the "substance" here refers to the "economic substance" of the enterprise's transactions or events, while the "form" refers to the "legal form" of the enterprise's transactions or matters. The principle of substance over form emphasizes that enterprises are engaged in accounting.

, the focus should be on the "economic substance" of the transaction or matter, rather than being completely confined to the "legal form" of the transaction or matter.

Under normal circumstances, the "economic substance" of an enterprise transaction or event is unified with its "legal form", and there is no requirement to implement the principle of substance over form. For example, enterprises use their own funds.

The purchased equipment is an asset of the enterprise from the perspective of economic substance, and from a legal point of view, the enterprise also has the right to ownership, use and disposal of the equipment. However, in some individual transactions or matters, there is a certain degree of separation between its "economic substance" and its "legal form". An example of this is the equipment financed lease.

The equipment leased by the enterprise is in the nature of the purchase of the lessor's equipment in installments, and the full payment of the equipment will only be paid at the end of the lease period. Before the expiration of the lease period, the lessee did not fully acquire ownership of the asset from a legal point of view. However, from an economic substance perspective, the benefits and risks associated with the asset have been transferred to the lessee, who has effectively exercised control over the asset.

In accordance with the principle of substance over form, the tenant can treat it as its own fixed asset.

Accounting is carried out according to the accounting method of self-owned fixed assets.

Economic substance is more important than legal form.

For example, financing.

Sale and leaseback. Business, in legal form, is the sale of assets and leasing of assets, and the economic essence is that assets are used as collateral for the price, and no income is recognized.

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

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 also obtained 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, under the articles of association or the Split Hunger Agreement, the company has the right to control the financial and operational decisions of the subsidiary, and to determine its future direction, then even the second largest shareholder has de facto 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.