Предимство ли е съдържанието пред формата?
Does Substance Take Precedence Over Form

Author(s): Nikolay Oresharov
Subject(s): Economy, Accounting - Business Administration, Socio-Economic Research
Published by: Университет за национално и световно стопанство (УНСС)
Keywords: substance over form; professional judgement; faithful representation; economic reality; taxation of mergers and acquisitions
Summary/Abstract: This paper poses three significant questions related to the recognition of the elements of the financial statements, consistent with the economic reality of economic processes and phenomena, rather than merely their legal form. The first question is why the economic reality conflicts with the legal regulation. Achieving conformity is a component of the legal regulation of social relationships. The faithful representation in financial reporting can be a significant consequence, but not a key catalyst, for the settlement of these relationships. The second question is to what extent accountant’s professional judgement should emphasize economic substance over legal form. Restricting this judgment through financial reporting standardization may redefine the understanding of professionalism, potentially reducing accountants to implementors of technical rules and guidelines, with limited opportunities to exercise professional discretion. As a result, accountants may become conduits for enforcing an abstract economic reality, shaped by the assumptions and values of the economic ideology underlying the applied standardization. This raises the third question, namely, whether the economic substance that the financial statements claim to represent faithfully truly exists. Anticipatory recognition of social relationships that have not yet found their final legal regulation can be a sign of progressive improvement in the creation of finncil information. However, there is also the possibility that the economic substance presented in the financial statements may diverge so significantly from actual social relationships that it renders the resulting economic information irrelevant and unreliable. These questions highlight the uncertainty regarding the usefulness of the information, aligned with the accounting principle that economic substance should take precedence over legal form in reporting processes and phenomena – a concept reflected in the title of this paper’s central questions – Does Substance Take Precedence Over Form?

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