2019 Universal registration document and annual financial report - BNP PARIBAS178

4 Consolidated finanCial statements for the year ended 31 deCemBer 2019

4

Notes to the financial statements

Note 2 EFFECT OF IFRS 16 FIRST TIME ADOPTION

As of 1 January 2019, BNP Paribas Group has applied the new accounting standard IFRS 16 Leases . The Group decided to apply the simplified retrospective transition requirement, with the cumulative effect in equity. This impact in equity results from the difference between:

■ a right of use and its amortisation as if the standard had been applied since the origination of the contract, discounted at the standard first application date;

■ a lease liability discounted at the standard first application date.

The discount rate applied for the measurement of both the right of use and the lease liability is the incremental borrowing rate based on the residual maturity of each contract at the date of the initial application of the standard. The average discount rates used on 1 January 2019 is 1.96%.

The Group has applied the main simplification measures offered by the standard when applying the simplified retrospective transition method, in particular the absence of accounting for a right-of-use for contracts whose residual maturity is lower than twelve months at transition date.

As part of the set up of this standard, the Group has identified rights- of-use of leased assets. A good is considered to be leased if the contract confers the right for the lessee, to control the use of a particular asset for a certain period of time for a consideration. In each case, the Group assessed:

■ the identifiable nature of the asset, which presupposes that the lessor has no substantial right of substitution at the date of the contract;

■ the effective nature of the control on the asset, which presumes for the lessor the right to obtain substantially all of the economic benefits arising from use of the asset, as well as the ability to decide on its use.

Where the lease also contains a non-rental component such as the provision of services, only the share of the rental corresponding to the rental component is taken into account by the Group in the valuation of the rights-of-use. The identification of rental or non-rental component is carried out on the basis of their individual contract price or otherwise on the basis of the observable comparable information.

For the calculation of the lease liability, the Group retains amounts, excluding value added tax of the following elements:

■ fixed rents;

■ variable rents dependent on an index, such as the construction index, or an interest rate;

■ as well as all expected residual value guarantee payments, the exercise price of call options and termination penalties.

Rents based on usage level or performance of a good are excluded from the calculation of the lease liability.

The lease contracts identified are essentially property leases, and to a lesser extent computer and banking equipment leases and vehicles leases. Property leases encompass either commercial agencies for retail banking, or operating offices (office buildings, head offices ) in France or abroad.

The Group made the choice not to apply the exemption to the accounting of initial deferred tax assets (DTA) and deferred liabilities (DTL) permitted by paragraphs 15 and 24 of IAS 12 Income taxes . Consequently, distinct deferred tax assets and deferred tax liabilities will be accounted for with regards to the balance sheet amounts of rights of use and lease liabilities of the lessee.

The main impacts on the balance-sheet are a negative effect of EUR 146 million (net of tax) in equity, an increase of fixed assets by EUR 3,357 million, the recognition of a lease liability of EUR 3,568 million and an increase of deferred tax assets by EUR 45 million (after compensation of DTA and DTL in accordance with the principles detailed in section 1.m Current and deferred tax).