BCEAO Instruction No. 033-11-2016 on Consolidated Financial Statements

The Governor of the Central Bank of West African States (BCEAO),

Having regard to the Treaty of the West African Monetary Union (UMOA) of January 20, 2007, particularly Article 34;

Having regard to the Statutes of the Central Bank of West African States (BCEAO), annexed to the UMOA Treaty of January 20, 2007, particularly Articles 30, 31, 32, 33, and 34;

Having regard to the Uniform Act on Banking Regulation, particularly Articles 50, 51, 52, 53, and 54;

Having regard to Decision No. 014/24/06/CM/UMOA of June 24, 2016, relating to consolidated supervision of credit institutions parent companies and financial companies in the UMOA;

Having regard to Decision No. 357-11-2016 of November 15, 2016, establishing the Revised UMOA Banking Accounting Plan and its annex,

DECIDES

Chapter 1: General Provisions

Article 1

Banks, banking-character financial institutions, and financial companies, hereinafter referred to as subject institutions or consolidating enterprises, are required to prepare consolidated financial statements in compliance with the provisions of this Instruction when they exercise exclusive or joint control over one or more other enterprises or exercise significant influence over them.

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INSTRUCTION NO. 033 - 11 - 2016 RELATING TO CONSOLIDATED FINANCIAL STATEMENTS The Governor

Article 2

For the purposes of this Instruction, the following expressions designate:

a) Group: the entity composed of the consolidating enterprise and the enterprises controlled, directly or indirectly, exclusively or jointly by the consolidating enterprise, and those over which the consolidating enterprise exercises significant influence.

b) Activities ancillary to banking activity:
– microfinance activities;
– foreign exchange operations;
– placement, subscription, purchase, management, custody, and sale of securities and any financial product; – advice and assistance in portfolio management; – issuance and management of electronic money.

c) Financial company: the holding entity as defined in Decision No. 014/24/06/2016 of June 24, 2016.

d) Exclusive control: the power to direct the financial and operational policies of an enterprise so as to obtain benefits from its activities. An enterprise is considered exclusively controlled when:
– the consolidating enterprise holds, directly or indirectly, a share conferring the majority of voting rights; – the consolidating enterprise appoints, for two consecutive financial years, the majority of the members of the administrative, management, or supervisory bodies. This appointment is presumed to have been made when the consolidating enterprise held, directly or indirectly, during this period, a fraction greater than 40% of the voting rights and no other partner or shareholder held, directly or indirectly, a fraction greater than its own; – the consolidating enterprise exercises dominant influence, by virtue of a contract or statutory clauses, when applicable law permits and the consolidating enterprise is a partner of the dominated enterprise.

e) Joint control: the sharing of control of an enterprise operated jointly by a limited number of partners or shareholders, such that financial and operational policies result from their agreement. The existence of joint control does not exclude the presence of minority partners or shareholders not participating in the control.

f) Significant influence: Significant influence on the management and financial and operational policies of one enterprise over another is presumed when the enterprise holds, directly or indirectly, a fraction at least equal to one-fifth of the voting rights of the other. It may, in particular, result from representation in management or supervisory bodies, participation in strategic decisions, existence of significant inter-company operations, exchange of management personnel, or technical dependency links.

g) Acquisition difference (Goodwill): the difference between the acquisition cost of the shares and the total valuation of identified assets and liabilities at the acquisition date;

h) Revaluation difference: the difference between the entry value in the consolidated balance sheet and the book value of the same element in the balance sheet of the controlled enterprise;

i) Consolidating enterprise: an enterprise that controls exclusively or jointly other enterprises regardless of their legal form or exercises significant influence over them;

j) Deferred taxes: taxes resulting from consolidation entries and specific adjustments made within the framework of consolidation or resulting from the temporary delay between the accounting recognition of income or expense and its inclusion in the fiscal result of a subsequent financial year, as well as from carry-forward fiscal losses of enterprises included in the consolidation.

k) Forward purchase agreement (Portage): a set of operations by which an enterprise is obliged to purchase shares from a holder at the end of a period and at a price determined in advance, this holder having the obligation to resell them to it.

Article 3

Exclusive and joint control as well as significant influence are understood as direct or indirect.

For the appreciation of the voting rights held by an enterprise in another, account must be taken of all voting rights attached to shares or parts held by the consolidating enterprise and by all other enterprises it controls exclusively.

Article 4

For the calculation of the fraction of voting rights held, account must be taken of the specifics relating to shares with double voting rights, preference shares without voting rights, and, if applicable, securities subject to firm commitments or forward purchase agreements held on behalf of the consolidating enterprise.

These securities are considered held on behalf of the consolidating enterprise if the specifics of the firm commitment or forward purchase contract make it the holder of the essential prerogatives attached to these securities.

Article 5

Subject institutions, which are themselves under the control of another subject institution subject to a consolidation obligation, are exempt from producing consolidated financial statements.

This exception cannot be invoked if consolidated financial statements are required by a group of shareholders representing at least one-tenth of the capital of the subject institution or by the Banking Commission.

Chapter 2: Determination of the Scope of Accounting Consolidation

Article 6

The scope of consolidation includes all enterprises of a group.

The entry of an enterprise into the scope of consolidation is effective:
– either on the date of acquisition of the shares by the consolidating enterprise; – or on the date of taking control or significant influence, if the acquisition took place in several stages; – or on the date provided for by the contract, if it provides for the transfer of control on a date different from that of the transfer of shares.

The exit from the scope of consolidation is effective on the date of loss of control or significant influence.

Article 7

The accounts of enterprises included in the scope of consolidation, under the articles above, are consolidated regardless of the legal form of these enterprises and the country in which their activity is exercised.

However, subject to justification in the annex notes, a controlled enterprise or one under significant influence may be excluded from the scope of accounting consolidation when:
– upon their acquisition, the shares of this enterprise are held solely for the purpose of subsequent sale, notably due to forward purchase agreements, financial assistance, restructuring, or rescue operations; – severe and lasting restrictions substantially undermine the control or influence exercised over this enterprise, the possibilities of fund transfers between this enterprise and other enterprises included in the scope of consolidation; – the information necessary for the preparation of consolidated financial statements cannot be obtained within timeframes compatible with those provided for the preparation and transmission of financial statements to the monetary and supervisory authorities.

Article 8

The inclusion of certain enterprises in the scope of account consolidation is not mandatory when their importance is negligible compared to the consolidated whole.

Enterprises whose total balance sheet is less than 2% of the group's total balance sheet, determined from the financial statements of the previous financial year, may be considered to be in this case.

Chapter 3: Common Rules to Different Consolidation Methods

Article 9

Consolidated financial statements are prepared annually for financial years running from January 1 to December 31.

In the case where a consolidated enterprise closes its financial year on a date prior to September 30, a statement of accounts prepared as of December 31 must be used. This statement must be reviewed by the statutory auditors of the enterprise or by a professional responsible for account auditing.

In other cases, it is not necessary to prepare interim accounts, provided that significant operations occurring between the two dates are taken into account.

Article 10

The consolidating enterprise must keep up to date a consolidation manual that formalizes choices and operations regarding adjustments, methods, and mode of consolidation. The consolidation manual must contain the audit trail allowing one to go from individual accounts to consolidated accounts and vice versa.

Article 11

The consolidation methods retained under this Instruction are as follows:
– full integration, for enterprises under exclusive control including enterprises with different accounting structures whose activity is an extension of the group's activity or constitutes an activity ancillary to banking activity, in accordance with the provisions of Article 2 of this Instruction. Enterprises whose main activity consists in holding fixed assets allocated to the operation of subject institutions or group IT service companies are notably considered as exercising an activity extending that of the group; – proportional integration, for enterprises under joint control including enterprises with different accounting structures whose activity is an extension of the consolidating enterprise's activity or constitutes an activity ancillary to banking activity; – equity method, for enterprises under significant influence and those under exclusive or joint control whose activity is not an extension of the group's activity or does not constitute an ancillary activity.

Article 12

For the preparation of consolidated financial statements, subject institutions follow the general principles provided by the Revised UMOA Banking Accounting Plan.

However, when a consolidated enterprise, belonging to a sector of activity other than the banking sector, applies accounting rules specific to this sector, these accounting rules are maintained in the consolidated financial statements, insofar as they are consistent with the general applicable principles.

Article 13

Assets, liabilities, and off-balance sheet items as well as charges and income of consolidated enterprises are evaluated and presented, using homogeneous methods within the group. Consequently, adjustments are made prior to consolidation whenever divergences exist between the accounting methods and their application modes retained for the individual financial statements of enterprises included in the scope of consolidation and those used for the consolidated financial statements.

This is the case for impairments and provisions constituted on risks borne by enterprises included in the scope of consolidation, which must be re-examined based on homogeneous principles of risk analysis. If the examination of impairments and provisions reveals a deficiency, a supplementary provision is made to the consolidated income statement. Conversely, manifestly excessive impairments and provisions are reversed to the credit of this account.

Article 14

A consolidated enterprise may be required to practice a general law revaluation or a free revaluation in its own individual financial statements if the national legislation of the country where it is located permits it. In this case, it is necessary either to eliminate it in the consolidated accounts or to practice the revaluation for the entire group, using uniform methods.

In the event of revaluation of all consolidated enterprises, depreciation charges as well as capital gains or losses on disposal are determined based on the revalued values. All useful information is given in the annex notes on the revaluation method, the difference generated, its impact on revaluation and acquisition differences, as well as on depreciation and impairments related to revalued assets.

Article 15

In order not to distort the image given by the consolidated financial statements, the impact of accounting entries made solely for the application of the fiscal legislation of the countries of establishment of enterprises entering the consolidation must be eliminated. This is the case, in particular, for special depreciation and regulated provisions.

Article 16

Deferred taxes must be disclosed in the consolidated balance sheet and income statement.

Deferred tax assets are taken into account only:
– if their recovery does not depend on future results: in this situation, they are retained up to the amount of deferred tax liabilities already recognized coming due in the period during which these assets become or remain recoverable; – or if their offset against future fiscal profits is probable. It is presumed that such profit will not exist when the enterprise has incurred losses during the last two financial years unless convincing contrary evidence is provided, for example if these losses result from exceptional circumstances that should not recur in the foreseeable future or if exceptional profits are expected.

Article 17

Deferred tax assets and liabilities, regardless of their maturity, must be offset when they concern the same fiscal entity. Deferred tax assets, liabilities, and charges must be presented separately from current tax assets, liabilities, and charges in the balance sheet and income statement. The annex notes must additionally provide information relating to:
– the indication of the amount of unrecorded deferred tax assets due to their recovery not being judged probable, with an indication of the furthest expiration date; – the breakdown of recognized deferred tax assets and liabilities by major category, notably temporary differences, tax credits, or carry-forward fiscal losses; – the justification for the recognition of a deferred tax asset when the enterprise has experienced a recent fiscal loss.

Article 18

Consolidated financial statements are prepared in CFA Francs. To this end, the annual accounts of enterprises included in the scope of consolidation, expressed in foreign currencies, are converted under the following conditions:
– all assets and liabilities, monetary or non-monetary, are converted at the exchange rate in effect on the closing date of the financial year or the nearest preceding date; – income and expenses are converted at the average rate of the period. However, exchange rates in effect on the closing date of the financial year or the nearest preceding date may be retained if their use does not reveal significant differences compared to the average rate method.

Conversion differences recognized, both on opening balance sheet elements and on the result, are carried, for the share belonging to the consolidating enterprise, to its equity under the item Conversion Differences and for the share of third parties under the item Minority Interests.

Article 19

Upon the entry of an enterprise into the scope of consolidation, the difference between the acquisition cost of the shares in the books of the consolidating enterprise and the share these shares represent in the equity of the consolidated enterprise, including the result of the financial year acquired on the entry date, is allocated between value adjustments of the elements of the balance sheet of the consolidated enterprise and a residual balance called acquisition difference (goodwill).

Article 20

The acquisition cost of shares is equal to the amount of remuneration remitted to the seller by the buyer, increased by all other costs directly attributable to the acquisition. This remuneration may be either cash, assets, or shares issued by an enterprise included in the consolidation. When payment is deferred or spread out, this cost must be discounted, if the effects of discounting are significant.

In the case of the purchase of shares in foreign currencies, the conversion rate used is the exchange rate on the date of entry into the scope of consolidation or, if applicable, that of the hedge, if it was taken before the operation. Costs incurred to set up hedges are also integrated into the acquisition cost of the shares.

In addition to the value of assets remitted by the buyer to the seller, the acquisition cost of shares includes direct costs, such as registration duties, share issuance fees, fees paid to consultants and external experts participating in the operation, net of the corresponding tax savings.

Article 21

The valuation of identifiable assets and liabilities must be made based on the situation existing on the date of entry of the enterprise into the scope of consolidation, without subsequent events being taken into consideration.

The difference between the entry value in the consolidated balance sheet and the book value of the same element in the balance sheet of the controlled enterprise is called the revaluation difference.

The identification and valuation of assets, liabilities, and off-balance sheet elements rely on an explicit and documented approach.

Regarding entry into the group, the amount resulting from the valuation of identifiable assets, liabilities, and off-balance sheet elements constitutes their new gross value, provided that these elements are subject to individual revaluation. This new gross value serves as the basis for subsequent calculations of capital gains or losses on disposal, as well as depreciation charges and impairments that will appear in the consolidated results.

Article 22

Positive acquisition difference (goodwill) is recorded in fixed assets and amortized over a period not exceeding twenty years. This duration must reflect, as reasonably as possible, the hypotheses retained and objectives set and documented at the time of acquisition.

A negative acquisition difference generally corresponds either to a potential capital gain due to an acquisition made under advantageous conditions, or to insufficient profitability of the acquired enterprise.

The recognition of positive revaluation differences must not result in a negative acquisition difference. Any eventual negative excess is charged to the result over a duration that must reflect the hypotheses retained and objectives set at the time of acquisition.

Chapter 4: Consolidation Rules Relating to Full Integration

Article 23

Full integration applies to enterprises under exclusive control including enterprises with different accounting structures whose activity is an extension of the group's activity or constitutes an ancillary activity.

It consists of:
– integrating into the accounts of the consolidating enterprise, the elements of the accounts of the consolidated enterprises, after eventual adjustments; – allocating equity and the result between the interests of the consolidating enterprise and the interests of other shareholders or partners known as minority interests; – eliminating operations and accounts between the fully integrated enterprise and other consolidated enterprises.

Article 24

In the context of consolidation, receivables, debts, and commitments between integrated enterprises as well as reciprocal income and expenses are eliminated in their entirety.

Capital gains or losses arising from the disposal of assets between integrated enterprises are eliminated. However, losses that appear justified are maintained, and capital gains resulting from the disposal of assets at reference prices whose determination is external to the group may not be eliminated if they are not significant.

Intra-group dividends are also eliminated in their entirety, including dividends that relate to results prior to the first consolidation.

Provisions for impairment of investment shares constituted by the enterprise holding the shares, and, if applicable, provisions for risks and charges constituted due to losses suffered by enterprises controlled exclusively, are eliminated in their entirety.

Article 25

When, following losses, the share belonging to minority interests of an enterprise consolidated by full integration becomes negative, the excess and subsequent losses attributable to minority interests are deducted from majority interests, unless the minority partners or shareholders have a formal obligation to cover these losses. If, subsequently, the consolidated enterprise realizes profits, majority interests are then credited with the total profits until the losses attributable to minority interests that they had assumed are fully eliminated.

Chapter 5: Consolidation Rules Relating to Proportional Integration

Article 26

Proportional integration applies to enterprises under joint control including enterprises with different accounting structures whose activity is an extension of the consolidating enterprise's activity or constitutes an ancillary activity.

It consists of:
– integrating into the accounts of the consolidating enterprise the fraction representative of its interests in the accounts of the consolidated enterprise, after eventual adjustments; – eliminating operations and accounts between the proportionally integrated enterprise and other consolidated enterprises.

Article 27

The essential difference with full integration lies in the fact that the integration into the accounts of the consolidating enterprise of the elements constituting the patrimony and the reserve...