“Substance before form”

1-Economic transactions and events must be accounted for and

presented, according to their substance and financial reality and not only
according to their form.
2-Substance rather than form, is an accounting term, which refers to the
fact that all financial statements or accounting processes must reflect a
reality, that is, they must yield an invariable and real result even when
the written documents do not adhere to an established pattern. In other
words, if an accountant calculates by identifying the total for each value
of the coins and bills and another accountant only adds everything and
writes it down as a total, the result will be the same, the difference will
only be that one of the accountants uses more ink.
3-When, by virtue of a higher standard, economic facts cannot be
recognized in accordance with their essence, notes to the financial
statements must indicate the effect caused by compliance with that
provision on the financial situation and the results of the year.
4- Application
Asset: resource controlled by the company as a result of past events
from which future economic benefits are expected.

Liabilities: Current obligation of the company, arising as a result of past

events, upon expiration of which, and for which the company expects to
release resources that incorporate economic benefits.

Equity: It is the residual participation in the assets of an entity, once all

its liabilities have been deducted.

Income: Increases in economic benefits through the receipt or increase of

assets or decrease in liabilities.
Expenses: Decreases in economic assets for services and goods obtained
or purchased.

While companies are legally required to report all information, this is

not necessarily the most important aspect of financial reporting. A
company usually has a legal department that reviews this
information. Accountants prefer the bottom line, that is, whether the
business made a profit. Trying to satisfy both the legal and financial
aspects in substance over form is too cumbersome for accountants.

Asset Smart

Principle N°14: Substantive content over form Accounting places emphasis on the economic
content of events, even though legislation may require different treatment.
Explanation/commentary of the principle Economic facts are measured in monetary terms and
their significance in accounting is economic, regardless of whether the presentation may be
required in a different way, such as, for example, the percentage of labor absorption of the
commune. or country.

In Guatemala, for the financial statements to be understandable and to be trusted, they must be
prepared in accordance with generally accepted rules or standards, which are known as
"accounting principles." The integrated and uniform system of government accounting considers
the following basic principles to be mandatory: entity, going concern, monetary unit,
conservatism, universality, substance before form, original historical cost (acquisition price). ,
realization, accounting period, sufficient disclosure (exposition), relative importance and
consistency or uniformity.

SUBSTANCE BEFORE FORM.

Economic transactions and events must be accounted for and presented
according to their substance and financial reality and not only according to
their form.

Bibliographic Source: Statement on financial accounting No. 1 IGCPA

Economic operations and events must be accounted for and presented according to their
substance and financial reality and not only according to their form.
Substance rather than form: It refers to the fact that economic transactions or events must be
recorded according to what they financially are and not what they appear to be in their form;

Substance before form: Economic transactions and events must be accounted

for and presented according to their substance and financial reality and not only according to their
form.

SUBSTANCE BEFORE FORM

Economic transactions and events must be accounted for and presented
according to their substance and financial reality and not only according to
their form. Economic assets and events must be recognized and disclosed
according to their essence or economic reality, although their actual form may
differ from this and consequently, it may suggest a different treatment. To
properly understand the meaning and scope of the concept
Substance in form
It is necessary, previously, to point out what a comprehensive accounting
basis is, what Generally Accepted Accounting Principles (GAAP) are, what
the structure of GAAP is, what a conceptual framework is and what the basic
standards are, to, finally, draw a conclusion. of a hermeneutical order.
Hermeneutics, 'art of explaining, translating or interpreting' Comprehensive
accounting base In general, an accounting system or base is a set of concepts
and methods that allows the accumulation and transmission of information
about economic facts. When this set is coherent and complete, the base in
question is considered
understanding
.The nature and needs of the recipient of the information (who is usually
called
user
), determines what you want to measure and how that process should be
carried out. Depending on such nature and needs, different comprehensive
accounting bases have been built.
SUBSTANCE BEFORE FORM. Economic transactions and events must be accounted
for and presented in accordance with their substance and financial reality and not only
in accordance with their form. Economic assets and events must be recognized and
disclosed according to their essence or economic reality, although their actual form
may differ from this and, consequently, may suggest a different treatment. To properly
understand the meaning and scope of the concept Substance over forms, it is
necessary to first point out what a comprehensive accounting basis is, what Generally
Accepted Accounting Principles (GAAP) are, what the structure of GAAP is, what a
conceptual framework is, and What are the basic rules, to finally draw a hermeneutical
conclusion. Hermeneutics, 'art of explaining, translating or interpreting' Comprehensive
accounting base In general, an accounting system or base is a set of concepts and
methods that allows the accumulation and transmission of information about economic
facts. When this set is coherent and complete, the basis in question is considered
comprehensive. The nature and needs of the recipient of the information (who is
usually called the user), determines what is to be measured and in what way this
process should be carried out. . Depending on such nature and needs, different
comprehensive accounting bases have been built.

SUBSTANCE BEFORE FORM

Economic transactions and events must be accounted for and presented, according to their
substance and financial reality and not only according to their form.

Substance rather than form: It refers to the fact that economic transactions or events must be
recorded according to what they financially are and not what they appear to be in their form.

To properly understand the meaning and scope of the concept

Substance over form
It is necessary, previously, to point out what a comprehensive accounting basis is,
what Generally Accepted Accounting Principles (GAAP) are, what the structure of
GAAP is, what a conceptual framework is and what the basic standards are, to,
finally, draw a conclusion. of a hermeneutical order. Hermeneutics, 'art of
explaining, translating or interpreting' Comprehensive accounting base In general,
an accounting system or base is a set of concepts and methods that allows the
accumulation and transmission of information about economic facts. When this set
is coherent and complete, the base in question is considered
understanding
.The nature and needs of the recipient of the information (who is usually called
user
), determines what you want to measure and how that process should be carried
out. Depending on such nature and needs, different comprehensive accounting
bases have been built.

Economic transactions and events must be accounted for and presented, according to their substance
and financial reality and not only according to their form.

Essence over form

Accounting and financial reporting are based on the
economic reality of transactions. The accounting

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Page 9

financial emphasizes the substance or economic essence of the

event, even though the legal form may differ from the
economic substance and follow different treatments
Generally the substance of the events to be
accounted for is in accordance with the legal form. No
However, sometimes the essence and form may differ and
accounting professionals emphasize more on the essence
that in the form, with the purpose that the information
provided reflects the best way of the activity
exposed economics.
Example
It generally happens that the reports made by the
accountant do not agree with the reality of the
company, that is, having a loss, the reports reflect
profits, which overlooked existing differences in
Reporting also reflects honesty
of the counter.

The purpose of the statement requires accountants to present

transactions based on economic substance rather than legal form.
Three requirements make up this accounting principle: integrity,
relevance and precision.

be accounted for and

presented in accordance with
its substance and financial
reality and not
only according to its form