CFM INDOSUEZ Wealth Management - 2019 annual report

which it is highly likely that the income thus recognised will not be subject to a significant downward adjustment when the uncertainty is resolved. This estimate is updated at each closing date. In practice, this condition has the effect of postponing the recognition of certain performance fees until the expiry of the performance valuation period and until they are definitively acquired. Leases (IFRS 16) The Group may be lessor or lessee in a lease agreement. Leases under which the Group is lessor Leasing transactions are analysed according to their substance and financial reality. They are accounted for as appropriate, either as operating leases or finance leases: • For operating leases, the lessor records the leased assets under property, plant and equipment in its balance sheet and recognises the lease income on a straight-line basis under “Income from other activities” in the income statement. • CFM Indosuez Wealth Group does not manage any finance leases. Leases under which the Group is lessee Leases are recorded in the balance sheet on the date the leased asset is made available. The lessee recognises an asset in Property, plant and equipment representing the right to use the leased asset over the estimated term of the contract, and a liability for lease payments is recorded in Other liabilities over the same period of time. The lease term corresponds to the non-cancellable period of the lease, adjusted to reflect (i) any option to extend the lease if the lessee is reasonably certain of exercising such option and (ii) any option to terminate the lease if the lessee is reasonably certain of not exercising such option. The lease term applied for 3/6/9 commercial leases is generally nine years with an initial non-cancellable period of three years. The lease term is recognised for an amount equal to the present value of lease payments over the life of the contract. These payments include fixed lease payments, variable lease payments based on an index or a rate and payments the lessee expects to pay in respect of residual value guarantees, purchase options or early termination penalties. Variable payments that do not depend on an index or rate and non-deductible VAT on lease payments are excluded from the liability calculation and are recognised as operating expenses. The discount rate applied to calculate the right to use the asset and the lease liability is by default the lessee’s incremental borrowing rate over the life of the contract as of the date of signing the contract, when the implicit rate cannot be easily determined. The incremental borrowing rate takes into account the structure of lease payments. The expense corresponding to the lease payments is broken down into interest and principal repayments. The right to use the leased asset is calculated using the initial value of the lease liability plus any direct initial costs, advance considerations and the cost of restoring the asset. It is amortised over the estimated term of the lease. The lease liability and the right-of-use asset may be adjusted if the lease agreement is amended, if the lease term is re-estimated or if the lease payments are revised due to the application of indices or rates. The lessee records deferred taxes for temporary differences between the right-of-use asset and the lease liability. Under the exception included in the standard, short-term leases (with an initial term of less than twelve months) and leases for low- value assets are not recorded in the balance sheet – the corresponding lease expenses are recognised on a straight-line basis as operating expenses in the income statement. In accordance with the provisions of the standard, the Group does not apply IFRS 16 to lease agreements for intangible assets. 1. 3 c o n s o l i d at i o n p r i n c i p l e s a n d m e t h o d s ( i f r s 10 , i f r s 11 e t i a s 2 8 ) Consolidation methods The consolidation methods are established by IFRS 10 and IAS 28, as amended, respectively. They are based on the nature of the control exercised by CFM Indosuez Wealth over entities within the scope of consolidation, regardless of their activity and whether or not they have legal status: • full consolidation for controlled entities, including entities with different account structures, even if their activity is not in line with that of CFM Indosuez Wealth; • the equity method, for entities under significant influence and under joint control. Full consolidation consists of replacing the value of the securities with all of the subsidiary’s asset and liability items. The share of non-controlling interests in equity and in income is indicated separately in the consolidated balance sheet and income statement. The equity method consists of replacing the value of the securities with the Group’s share of equity and the profit or loss of the companies concerned. Since the two consolidated subsidiaries were created by the CFM Indosuez Wealth, no goodwill was recognised. Consolidation adjustments and eliminations Consolidation adjustments are made to ensure the consistency of the valuation methods applied by consolidated companies. The impact on the consolidated balance sheet and income statement of internal Group operations is eliminated for fully consolidated entities. Capital gains or losses from asset sales between consolidated companies are eliminated; any permanent impairment recorded on an internal transfer is recognised. 70 CFM Indosuez Wealth Management