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Revision question on IASB conceptual framework (NBAA, C1, NOV 2018)

The IASB Conceptual Framework requires information to reflect the substance of a transaction for it to be reliable.
The substance of a transaction is its commercial effect. Normally this is the same as its legal form but for complex transactions, this may not be the case. The general principle that results from the IASB Conceptual Framework is that where the legal form of the transaction does not reflect its substance, the legal form should be set aside in order to reflect substance. This is known as substance over form accounting.



REQUIRED:

Explain briefly why it is important for transactions to be accounted using substance rather than legal form, and describe how financial statements can be adversely affected if the substance of transactions is not recorded.

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