CFM INDOSUEZ Wealth Management - 2020 Annual Report

70 Provisions (IAS 37 and 19) CFM Indosuez Wealth Group identifies legal or implicit obligations resulting froma past event, in cases inwhich it is likely that an outflow of resources will be required to settle them, where the timing or amount are uncertain but of which a reliable estimate can be made. These estimates may be updated if the impact is significant. In respect of non-credit risk obligations, CFM Indosuez Wealth Group has set up provisions that cover: • employee benefits; • performance risk on off-balance sheet commitments; • litigation and liability guarantees. Commitments are established taking into account, in particular: • the modelled behaviour of the subscribers, using assumptions of changes in these behaviours, based on historical observations and whichmay not reflect actual future changes; • an estimate of the amount and duration of future borrowingsbasedonhistorical long-termobservations; • the curve of observable rates on the market and reasonably anticipated changes in such rates. The amount of the following provisions may also be estimated: • provisions for legal risks resulting fromManagement’s best assessment, taking into account the information in its possession at the end of the financial year. Detailed information is provided inNote 6.12 “Provisions”. Employee benefits (IAS 19) Employee benefits, in accordance with IAS 19, fall into four categories: • short-term benefits, such as wages, social security contributions, holidays, incentive bonuses, profit- sharing, and bonuses, are those expected to be paid within 12 months of the year in which the services were rendered; • retirement benefits, which are themselves classified into the two categories described below: defined benefit plans and defined contribution plans. • long-term benefits (long service awards, bonuses and compensation payable twelve months or more after the fiscal year); • termination benefits. Post-employment benefits Defined benefit plans At each closing date, CFM Indosuez Wealth Group determines its retirement and similar benefits as well as all the employee benefits granted in respect of defined benefit plans. In accordance with IAS 19, these commitments are measured based on a set of actuarial, financial and demographic assumptions andaccording to theprojected unit credit method. This method consists of allocating an expense corresponding to the entitlements earned over the fiscal year for each year of theemployee’s activity. Thecalculationof this expense is basedon thediscounted future benefit. The calculationof employee retirement and futurebenefit expenses is basedon assumptions regarding thediscount rate, staff turnover rate and trends in salary and social securitycontributionsdevelopedbyManagement. If actual figures differ fromthe assumptions used, the retirement benefit expensemay increase or decrease in future years (seeNote 7.4 “Retirement benefits, definedbenefit plans”). The discount rates are determined according to the average duration of the commitment, i.e. the arithmetical averageof thedurations calculatedbetween the valuation date and the payment date weighted by turnover assumptions. The expected rate of return on plan assets is also estimated by Management. The estimated returns are based on the expected return on fixed income securities, in particular bond yields. The expected return on plan assets is determined based on the discount rates used tomeasure the definedbenefit obligation. In accordance with revised IAS 19, CFM IndosuezWealth Group records all recognised actuarial gains and losses directly in equity. The amount of the provision is equal to: • the present value of the defined benefit obligation as of the balance sheet date, calculated using the actuarial method recommended by IAS 19; • less, if applicable, the fair value of the assets allocated to cover these commitments. In respect of these unhedged commitments, a provision to cover retirement benefits is recorded under balance sheet liabilities under Provisions. This provision is equal to the amount of the commitments concerning Crédit Agricole Group employees present at the end of the financial year, covered by CFM Indosuez Wealth Group collective bargaining agreement. A provision to cover the cost of early retirement plans is included in the same Provision account. This provision covers the discounted additional cost of the various early retirement agreements signed by CFM IndosuezWealth Groupentitieswhich allowtheir employees of the required age to benefit from a dispensation fromwork.