2020 Universal registration document and annual financial report - BNP PARIBAS190
4 Consolidated finanCial statements for the year ended 31 deCemBer 2020
4
Notes to the financial statements
As regards the assessment of uncertainty over income tax treatments, the Group adopts the following approach:
■ the Group assesses whether it is probable that a taxation authority will accept an uncertain tax treatment;
■ any uncertainty shall be reflected when determining the taxable profit (loss) by considering either the most likely amount (having the higher probability of occurrence), or the expected value (sum of the probability-weighted amounts).
Current and deferred taxes are recognised as tax income or expenses in the profit and loss account, except for those relating to a transaction or an event directly recognised in shareholders equity, which are also recognised in shareholders equity. This concerns in particular the tax effect of coupons paid on financial instruments issued by the Group and qualified as equity instruments, such as Undated Super Subordinated Notes.
When tax credits on revenues from receivables and securities are used to settle corporate income tax payable for the period, the tax credits are recognised on the same line as the income to which they relate. The corresponding tax expense continues to be carried in the profit and loss account under Corporate income tax .
1.n CASH FLOW STATEMENT The cash and cash equivalents balance is composed of the net balance of cash accounts and accounts with central banks, and the net balance of interbank demand loans and deposits.
Changes in cash and cash equivalents related to operating activities reflect cash flows generated by the Group s operations, including those relating to financial investments of insurance activities and negotiable certificates of deposit.
Changes in cash and cash equivalents related to investing activities reflect cash flows resulting from acquisitions and disposals of subsidiaries, associates or joint ventures included in the consolidated group, as well as acquisitions and disposals of property, plant and equipment excluding investment property and property held under operating leases.
Changes in cash and cash equivalents related to financing activities reflect the cash inflows and outflows resulting from transactions with shareholders, cash flows related to bonds and subordinated debt, and debt securities (excluding negotiable certificates of deposit).
1.o USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
Preparation of the financial statements requires managers of core businesses and corporate functions to make assumptions and estimates
that are reflected in the measurement of income and expense in the profit and loss account and of assets and liabilities in the balance sheet, and in the disclosure of information in the notes to the financial statements. This requires the managers in question to exercise their judgement and to make use of information available at the date of the preparation of the financial statements when making their estimates. The actual future results from operations where managers have made use of estimates may in reality differ significantly from those estimates, mainly according to market conditions. This may have a material effect on the financial statements.
This applies in particular to:
■ the analysis of the cash flow criterion for specific financial assets;
■ the measurement of expected credit losses. This applies in particular to the assessment of significant increase in credit risk, the models and assumptions used to measure expected credit losses, the determination of the different economic scenarios and their weighting;
■ the analysis of renegotiated loans, in order to assess whether they should be maintained on the balance-sheet or derecognised;
■ the assessment of an active market, and the use of internally developed models for the measurement of the fair value of financial instruments not quoted in an active market classified in Financial assets at fair value through equity , or in Financial instruments at fair value through profit or loss , whether as assets or liabilities, and more generally calculations of the fair value of financial instruments subject to a fair value disclosure requirement;
■ the assumptions applied to assess the sensitivity to each type of market risk of the market value of financial instruments and the sensitivity of these valuations to the main unobservable inputs as disclosed in the notes to the financial statements;
■ the appropriateness of the designation of certain derivative instruments such as cash flow hedges, and the measurement of hedge effectiveness;
■ impairment tests performed on intangible assets;
■ the deferred tax assets;
■ the estimation of insurance technical reserves and policyholders surplus reserves;
■ the measurement of uncertainty over income tax treatments and other provisions for contingencies and charges. In particular, while investigations and litigations are ongoing, it is difficult to foresee their outcome and potential impact. Provision estimation is established by taking into account all available information at the date of the preparation of the financial statements, in particular the nature of the dispute, the underlying facts, the ongoing legal proceedings and court decisions, including those related to similar cases. The Group may also use the opinion of experts and independent legal advisers to exercise its judgement.
