Are legal views on accounting arrangements helpful?

The financial statements are prepared using an underlying principle of “substance over form”. The purpose of the financial statements is to faithfully represent the economic phenomena underlying transactions and events. Faithfully representing the economics of transactions and events means that the principles in the Standards of GRAP that describe relationships and their elements – revenue, expenses, assets and liabilities – are used to prepare the financial statements. Sometimes, these principles are different from the legal form described in contracts or legislation.

Contracts and legislation give rise to specific rights and obligations in arrangements. It is always important to understand what rights and obligations exist in arrangements and their legal consequences. Legal experts have the necessary expertise to interpret the legal implications of arrangements. They do not necessarily possess the expertise to interpret the concepts and principles in the Standards and apply them to economic phenomena. Interpreting the Standards of GRAP and applying them to specific transactions and events requires knowledge of the entire suite of Standards, as well as the application of professional judgement.

Opinions from legal experts on the Standards of GRAP carry no more weight than opinions provided by accounting or other experts.

For more information on the Standards of GRAP, read the ASB’s Conceptual Framework on General Purpose Financial Reporting here.