The Decline of Substance over Form in Accounting: A Problematic Dichotomy

Abstract This essay is a comment on the paper authored by Fischer, Ellman and Schocet (2021, The decline of substance over form in accounting. Accounting, economics, and law: A convivium. (forthcoming)) who argue that the trend in financial reporting regulation involves de-emphasizing the important of economic substance relative to form in how auditors are to perceive their role. The danger foreseen by the authors is the further shrinking of the leeway for professional judgment, which is an important hallmark of a true professional. Agreeing the authors have raised a crucial issue for any group claiming professional status, I try to add to the discussion by pointing out that form and substance in the realm of financial reporting regulation are not antipodes but complementary parts of a process of continuous redefining of what economic substance is. Social reality is socially constructed and as such choices of form made by humans effectively shape substance. Given the capture of accounting by economics during the 1960s, accountants have lost an appreciation for the tentativeness of economic substance and now serve not as participants in shaping economic substance but as enforcers of an imaginary economic substance that derives from the assumptions and values in the ideology of neoclassical economics.