La banque d'un monde qui change 2004 - BNP Paribas

Consolidated FInancial statementsNOTE 1 – ACCOUNTING POLICIES (CONT’D)Provisions not Set Up in Connection with Bankingor Banking-related TransactionsThe Group records provisions for clearly identified risksand charges, of uncertain timing or amount. In accordancewith current regulations, these provisions which are notconnected with banking or banking-related transactionsmay only be recorded if the Group has an obligation toa third party at the year-end and no equivalent economicbenefits are expected from that third party.Forward Financial InstrumentsForward financial instruments are purchased on variousmarkets for use as specific or general hedges of assetsand liabilities and for position management purposes.• Market Value of Financial InstrumentsFinancial instruments are measured based on their marketvalue when they are listed, or based on internal modelswhere no organised market exists. The value determinedby applying these models is adjusted to take into accountinherent model and liquidity risks.The market value of financial instruments for which a quotedprice is not directly available is determined on the basisof the price of transactions carried out close to the year-endor prices obtained from brokers or counterparties, backed upby qualitative analyses.• Forward Interest Rate InstrumentsInterest rate futures and options contracts forming partof the trading portfolio and traded on organised exchangesare marked to market at the balance sheet date. Realisedand unrealised gains and losses are taken to income under“Net gains (losses) on sales of trading account securities”.Gains and losses on certain OTC contracts representingisolated open positions are taken to income either whenthe contracts are unwound or on an accruals basis, dependingon the nature of the instruments. Provisions for contingenciesare booked to cover unrealised losses on a contract bycontract basis, taking into account potential gains and losseson related specific hedges.Income and expenses on interest rate contracts designatedat the outset as hedging operations are recognised ona symmetrical basis with the income or expense on theunderlying instrument.• Forward Currency InstrumentsOptions contracts are marked to market and the resultingunrealised gains and losses are posted to income.A similar treatment is used for forward exchange contractsbought and sold for trading purposes. Hedging contractsare valued at the spot rate prevailing at the end of the year.Differences between the spot and forward rates (contangoand backwardation) for hedged forward currency transactionsare recognised on an accruals basis and posted to the profitand loss account over the life of the hedged transaction.• Equity and Equity Index DerivativesThe BNP Paribas Group buys and sells equity and equityindex options for trading and hedging purposes. In the caseof trading transactions, unrealised gains and losses oncontracts that have not been unwound by the balancesheet date are posted directly to income. Gains and losseson equity and equity index contracts designated as hedgesare recognised on a symmetrical basis with the gain or losson the underlying hedged instrument.• Composite InstrumentsComposite instruments (synthetic combinations ofinstruments recorded as a single instrument) are valuedby aggregating the individual values of each basic instrumentincluded in the composite. However, they are recorded foraccounting purposes as a single instrument, with a singlenotional value off balance sheet and a single net movementin the consolidated profit and loss account.• Credit Risk Management InstrumentsInstruments intended to protect loan portfolios againstcounterparty risks are treated as guarantees received. Creditderivatives purchased and sold in connection with tradingtransactions and structured product sales are valued usinginternal models, based on market data where available. Therevenue determined by applying these models is adjusted totake into account inherent model and liquidity risks.Corporate Income TaxBNP Paribas Group companies are subject to corporateincome tax based on rules and rates prevailing in the207BNP PARIBAS - ANNUAL REPORT 2004