In accounting, substance (economic substance) of a transaction means its actual or original nature, irrespective of the way it is treated or recorded (that is, irrespective of its legal form). Substance is a concept that a transaction recorded in the financial statements and accompanying disclosures of an entity must reflect its economic reality.

If the substance and economic reality do not reflect the legal form, it will signify a degree of incompatibility with the principles of financial reporting. Substance and form in the domain of financial reporting regulation are not antipodes but complementary components of an ongoing process of establishing and continuous redefining of “substance”.

For instance, the substance as to an “asset” implies that it describes a natural or physical kind. However, an asset is a broader concept whose existence depends on a set of conventions and institutional considerations that can make something an asset, no matter its physical nature. This creates an inherent subjectivity to “substance,” that depends on conventions and collective perspective of a society.