Substance Over Form

Formal

An accounting term (convention) that describes where ‘the commercial substance of a transaction must override its contractual form’. Accountants are responsible for the true and fair reporting of results, and occasionally some contracts are written to deliberately confuse. This is the accountants’ defence to allow them to report the situation properly.

Real-world Example

A company structures a contract to look like a rental on paper, but in practice the customer bears all the risks and rewards of ownership. Accounting rules require the deal to be reported based on this economic substance, not its legal form - hence 'substance over form'.