2019 Universal registration document and annual financial report - BNP PARIBAS 473

6information on the Parent ComPany finanCial statements at 31 deCemBer 2019

6

Notes to the parent company financial statements

In both cases, BNP Paribas SA makes conservative value adjustments to account for modelling, counterparty, and liquidity risks.

Some complex derivatives, which are typically custom-made from combined instruments and highly illiquid, are valued using models where certain parameters are not observable on an active market.

Until 31 December 2004, the Bank recognised gains from trading these complex derivatives immediately in income.

However, on 1 January 2005, the Bank began recognising these gains in income over the period during which the valuation parameters are expected to be unobservable. When parameters that were originally non-observable become observable, or when the valuation can be substantiated in comparison with recent similar transactions in an active market, the unrecognised portion of the profit is recognised in income.

Derivatives held within an isolated open position

Depending on the nature of the instruments, gains and losses on contracts representing isolated open positions are recognised in income when the contracts are settled or on a prorata basis. Derivatives are measured at market value on the balance sheet date and a provision for unrealised losses is recognised for each group of homogeneous contracts.

CORPORATE INCOME TAX A charge for corporate income tax is taken in the period in which the related taxable income and expenses are booked, regardless of the period in which the tax is actually paid. When the period in which the income and expenses are booked differs from that in which the income is taxed and expenses deducted, BNP Paribas SA recognises a deferred tax, whose amount is calculated according to the liability method, with the basis taken to be all temporary differences between the book value and tax basis of balance sheet items, and applying applicable future tax rates once these have been approved. Deferred tax assets are recognised in accordance with the likelihood of their being recovered.

EMPLOYEE PROFIT-SHARING As required by French law, BNP Paribas SA recognises employee profit- sharing in the year in which the employee entitlement arises. The amount is reported under Salaries and employee benefit expenses in the profit and loss account.

EMPLOYEE BENEFITS BNP Paribas SA employees receive each of the following four types of benefits:

■ termination benefits, payable primarily in the case of early termination of an employment contract;

■ short-term benefits, such as salary, annual leave, incentive plans, profit-sharing and additional payments;

■ long-term benefits, including compensated leaves of absence, long- service awards, and other types of cash-based deferred remuneration;

■ post-employment benefits, including top-up banking industry pensions in France and pension plans in other countries, some of which are operated through pension funds.

Termination benefits

Termination benefits are employee benefits payable as a result of a decision by BNP Paribas SA to terminate a contract of employment before the legal retirement age or by an employee to accept voluntary redundancy in exchange for a benefit. Termination benefits due more than 12 months after the closing date are discounted.

Short-term benefits

BNP Paribas SA recognises an expense when it has used services rendered by employees in exchange for employee benefits.

Long-term benefits

Long-term benefits are benefits (other than post-employment benefits and termination benefits) which do not fall wholly due within 12 months after the end of the period in which the employee renders the associated services. The actuarial techniques used are similar to those used for defined-benefit post-employment benefits, except that actuarial gains and losses are recognised immediately, as are the effects of any plan amendments.

This relates in particular to cash remuneration deferred for more than 12 months, which is accrued in the financial statements for the period during which the employee provides the corresponding services. If the payment of deferred share-based variable remuneration is explicitly subject to the employee s continued employment at the vesting date, the services are presumed to have been rendered during the vesting period and the corresponding compensation expense is recognised on a prorata basis over that period. The expense is recognised under salary and employee benefits expenses with a corresponding liability in the balance sheet. It is revised to take account of any non-fulfilment of the continued presence or performance conditions, and changes in the BNP Paribas share price, for deferred remuneration indexed to the share.

If there is no continued presence condition, the expense is not deferred but recognised immediately with a corresponding liability in the balance sheet, which is then revised on each reporting date until settlement, to account for any performance conditions and changes in the BNP Paribas share price.