2019 Universal registration document and annual financial report - BNP PARIBAS158

4 Consolidated finanCial statements for the year ended 31 deCemBer 2019

4

Notes to the financial statements

4.6 Notes to the financial statements prepared in accordance with IFRS as adopted by the European Union

Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES APPLIED BY THE GROUP

1.a ACCOUNTING STANDARDS

1.a.1 Applicable accounting standards

The consolidated financial statements of the BNP Paribas Group have been prepared in accordance with international accounting standards (International Financial Reporting Standards IFRS), as adopted for use in the European Union(1). Accordingly, certain provisions of IAS 39 on hedge accounting have been excluded, and certain recent texts have not yet undergone the approval process.

Information on the nature and extent of risks relating to financial instruments as required by IFRS 7 Financial Instruments: Disclosures and to insurance contracts as required by IFRS 4 Insurance Contracts , along with information on regulatory capital required by IAS 1 Presentation of financial statements are presented in chapter 5 of the Universal registration document. This information, which is an integral part of the notes to the BNP Paribas Group s consolidated financial statements, is covered by the opinion of the Statutory Auditors concerning the consolidated financial statements, and is identified in the Annual Report by the word Audited .

■ Since 1 January 2019, the Group applies IFRS 16 Leases , adopted by the European Union on 31 October 2017.

IFRS 16 supersedes IAS 17 Leases and the interpretations relating to the accounting of such contracts. It defines new accounting principles applicable to lease contracts for the lessee, that rely on both the identification of an asset and the control of the right to use the identified asset by the lessee.

The standard requires the recognition in the balance-sheet of the lessee of all lease contracts, in the form of a right-of-use on the leased asset presented under fixed assets, along with the recognition of a financial liability for the rent and other payments to be made over the leasing period. The right-of-use assets are amortised on a straight-line basis and the financial liabilities are amortised on an actuarial basis over the lease period. The main change induced by this new standard is related to contracts which, under IAS 17, met the definition of operating leases, and as such, did not require recognition of the leased assets in the balance sheet.

The main impact in the profit and loss account is the replacement of rental expenses previously accounted for on a linear basis in operating expenses by additional interest expenses in Net Banking Income in relation with lease liabilities, and the recognition of additional amortizing expenses in relation with rights-of-use.

Detailed accounting principles applicable by the Group as lessee are presented in note 1.h.2. The detail of the impacts of the first application of the standard is presented in note 2.

From the lessor s point of view, the impact is limited, as the requirements of IFRS 16 remain mostly unchanged from IAS 17.

The IFRS Interpretation Committee has been requested with a question concerning the determination of a lease term of two types of contracts cancellable or renewable:

■ contracts without no particular contractual term, cancellable at any time with notice period by either the lessee and the lessor without penalty to paid,

■ contracts concluded for an initial short period (normally 12 months), renewable indefinitely by tacit renewal for the same period, unless the lessor and the lessee gives notice to the contrary;

At the end of its meeting of 26 November last, IFRIC confirmed its reading of IFRS 16 by stating that the enforceability of the two types of contract may extend beyond the notice period if either party has an economic incentive not negligible to not terminate the lease. IFRIC also confirmed that if an entity expects to use non-removable leasehold improvement after the date on which the contract can be terminated, the existence of such improvements indicates that the entity may incur a significant economic penalty in the event of termination and in this case the contract becomes enforceable beyond the date of termination.

The application of this decision should have a non significant impact for the Group and will be applied in 2020.

■ The Group has applied IFRIC 23 Uncertainty over income tax treatment for the preparation of its consolidated financial statements for the financial year 2019. The consequence of this standard is the reclassification in current and deferred tax liabilities of provisions for uncertainties relating to income tax.

■ Since 1st January 2018, the Group has anticipated the application of amendments to IFRS 9: Prepayment Features with Negative Compensation.

(1) The full set of standards adopted for use in the European Union can be found on the website of the European Commission at: https://ec.europa.eu/info/business-economy-euro/ company-reporting-and-auditing/company-reporting_en