An accounting concept (or principle) that entails that an entity’s financial statements shall be prepared and produced in a manner that accurately reflects the real state of affairs of that entity and the conditions in which it operates. In other words, it implies that the information presented in the financial statements should reflect the transactions and events that occur during a period in a manner that represents their true economic substance rather than merely their legal form.

According to this concept, if the substance of a transaction differs from its legal form, then the entity shall consider it (and account for it) in accordance with its economic reality, in order to present a true and fair view.

For example, if an entity reports on its statement of financial position an amount of CU 1 million of accounts receivable as at year-end, then that amount should be present on that specific date.

This concept or principle is also known as faithful representation.