2018 REGISTRATION DOCUMENT AND ANNUAL FINANCIAL REPORT

2018 Registration document and annual fi nancial report - BNP PARIBAS 177

4CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

Notes to the fi nancial statements

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 refl ected in the measurement of income and expense in the profi t and loss account and of assets and liabilities in the balance sheet, and in the disclosure of information in the notes to the fi nancial 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 fi nancial statements when making their estimates. The actual future results from operations where managers have made use of estimates may in reality differ signifi cantly from those estimates, mainly according to market conditions. This may have a material effect on the fi nancial statements.

This applies in particular to:

■ the analysis of the cash fl ow criterion for specifi c fi nancial assets;

■ the measurement of expected credit losses. This applies in particular to the assessment of signifi cant 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;

■ the use of internally-developed models to measure positions in fi nancial instruments that are not quoted in active markets;

■ calculations of the fair value of unquoted financial instruments classifi ed in Financial assets at fair value through equity , or in Financial instruments at fair value through profi t or loss , whether as assets or liabilities, and more generally calculations of the fair value of fi nancial instruments subject to a fair value disclosure requirement;

■ whether a market is active or inactive for the purposes of using a valuation technique;

■ impairment tests performed on intangible assets;

■ the appropriateness of the designation of certain derivative instruments such as cash fl ow hedges, and the measurement of hedge effectiveness;

■ estimates of the residual value of assets leased under fi nance leases or operating leases, and more generally of assets on which depreciation is charged net of their estimated residual value;

■ the measurement of provisions for contingencies and charges. In particular, while investigations and litigations are ongoing, it is diffi cult 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 fi nancial 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.

This is also the case for assumptions applied to assess the sensitivity of each type of market risk and the sensitivity of valuations to non- observable parameters.

Note 2 I MPACTS OF PRESENTATION CHANGES AND OF THE FIRST TIME ADOPTION OF IFRS 9 AND IFRS 15

As at 31 December 2017, the BNP Paribas Group operated presentation changes and recognised securities at their settlement date:

■ fi nancial instruments of insurance entities, which continue to be recognised according to IAS 39 until 31 December 2020, have been grouped on separate lines of the balance sheet, of the profi t and loss account and of the statement of net income and changes in assets and liabilities recognised directly in equity;

■ ahead of the implementation of IFRS 9 Financial instruments as of 1 January 2018, a few item headings have been renamed in the balance sheet, the profi t and loss account and in the statement of net income and changes in assets and liabilities recognised directly in equity;

■ in order to align the defi nition of credit institutions in the fi nancial statements with the definition used in regulatory reportings, outstanding balances with some counterparties were reclassifi ed from Loans and advances to credit institutions to Loans and advances to customers ;

■ securities transactions, previously recognised at trade date, are now recognised at settlement date. This new representation of securities converges with rules applied for liquidity ratios.

The impacts of these changes on the balance sheet, the profi t and loss account and on the statement of net income and changes in assets and liabilities recognised directly in equity are presented in note 2.a.

Then, as of 1 January 2018, the BNP Paribas Group has applied the new accounting standards IFRS 9 and IFRS 15:

■ financial instruments held by non-insurance entities have been classified and measured in accordance with IFRS 9 Financial instruments ;

■ IFRS 15 Revenue from Contracts with Customers has been applied without any signifi cant change to the balance sheet.

The impacts of the IFRS 9 and IFRS 15 fi rst time adoption are presented in note 2.b.