Reporting Economic Substance Over Legal Form: Need Legal Recognition
The Management Accountant, Vol. 35, No. 1, pp. 25-28, January 2000
Posted: 31 Jan 2005
Disclosing merely the legal form of a transaction, ignoring its real economic substance, distorts the true picture of the company. Too often it leads to distorted 'asset base' consequently manipulating the real impact on ROI, EPS, and EVA. True, complete, transparent, unambiguous and faithful communication of transactions and events through financial reporting depends on the desire and judgment of the management. The issue is, therefore, one of proper communication. The present paper discusses the concept of economic substance over legal form with the case study of leasing, lease and sale back, factoring of receivables, and compound financial instruments. An insight into international practices has been laid down with the case study of UK and Netherlands. The case for India has been made our by bringing out clearly the gap between theory and practice.
Keywords: Financial Reporting, Economic Substance, Legal Form
JEL Classification: M41
Suggested Citation: Suggested Citation