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The principle associated with the concept of "substance over form" is focused on the economic reality of transactions rather than merely their legal form. This principle is fundamental in accounting, as it requires that the financial statements reflect the true economic situation of an entity, rather than just the legal documents that might outline transactions.

By adhering to this principle, accountants ensure that the financial reporting accurately presents the underlying economic events that affect an organization. This approach is crucial because transactions might have a specific legal form but may not reflect the true financial position or results of operations. For instance, a transaction can be structured in a way that its legal aspects suggest one arrangement, while the actual intent and result of the transaction indicate something different.

Adopting this principle enhances transparency and provides a more complete picture of an entity's financial health, supporting stakeholders in making informed decisions based on the true economic outcomes rather than focusing solely on the facade presented by legal documentation or contracts. This focus on substance aims to prevent the potential manipulation or misrepresentation that could arise from adhering strictly to form, reinforcing the integrity of financial reporting.