About BNP Paribas:
BNP Paribas is a 10 years old French bank and is one of the strongest banks in the world. It is said to be the first bank in Europe in terms of deposits and it is a one of the leaders of global banking and financial services in the world; based on several global rating companies and websites. BNP Paribas operates in over 80 different countries, all over the world. It is a multi-national corporation, with over 200,000 employees. It has 3 main financial services and divisions;
1. Retail Banking
2. Corporate and investment banking
3. Investment solutions
BNP has 7 commercial branches in the gulf region. One of BNP Paribas' branches located in the GCC is in the Kingdom of Bahrain, employing around 320 employees and located in the Bahrain Financial Harbor. BNP's main aim is to be stated and ranked as a bank with the best establishments along with high product and services quality, good customer services and high innovation level.
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BNP stated that "We are by far the leading European bank who is most active in project finance, export credit, structured finance and fixed income. We also have in-house expertise to provide advisory services to a broad range of corporates in the field of telecoms, infrastructure projects and other acquisition and M&A related activities.
In addition the region hosts BNP Paribas Najmah, the Islamic banking Unit of the bank that provides Sharia'h compliant financing & investment solutions to corporates and individuals." 
The products that BNP Paribas provide for the individuals include current and savings accounts, term deposits, all payment and collection services like international transfers and cheque books and electronic banking services. However, the branch of BNP Paribas located in the kingdom of Bahrain does not provide the services of a commercial, and only operates as a corporate bank.
Accounting Cycle in BNP Paribas:
To be able to find out the maximum knowledge about BNP Paribas and their accounting process; BNP Paribas was visited and an interview was conducted with few of the staff members (few officers) of the finance department. The following information is the summarized information gathered from all the sources available. They describe all the books and steps that are included in the accounting cycle. It is also shown below how BNP Paribas maintains their books of accounts and what are the items included in some of their accounts and books; like the income statement and balance sheet.
The reason for the name 'Accounting Cycle' is because all the books to be maintained are connected to each other. For instance, to prepare the ledgers the journal has to be prepared first; and to prepare the trial balance the ledger has to be prepared before that. In addition, unless the trial balance is prepared the company cannot move on with the accounting process; and hence cannot prepare the income statement or the balance sheet. That is why; it is of great importance that full attention is paid to all the accounting books starting from journal to the balance sheet; because a single mistake in any of the accounting books will lead to an error in the final accounts.
Journal is the first step of keeping the accounting books. Whenever a transaction takes place a journal entry is passed, and is recorded in the journal. The dual aspect concept of the accounting system is that there is a giver and a receiver in every transaction. Hence, based on the type of the aspect/account, for example if it is a 'Nominal Account', every aspect of the transaction will be either debited or credited. Before any entry is recorded two decisions must be taken. The first decision is to decide which accounts are going to be affected (e.g. the machinery account or the bank account) and the second decision will be to decide which account is to be debited and which account is to be credited.
In BNP Paribas journals are maintained. This is because keeping journal is an essential part of the accounting cycle, as ledgers cannot be prepared without referring to the journal entries recorded. Whenever a transaction takes place, the journal entry is immediately recorded into the books of accounts.
Always on Time
Marked to Standard
The journal entries kept are then transferred to the ledgers. They are recorded into the different accounts in the ledgers according to their type and their account name. The ledgers are divided into several books which includes cash book , sales day book , purchases day book, return inwards books, return outwards books and the general ledger. The journal entries will be transferred to any one or more of the above parts of the ledgers. The ledgers show the T-Accounts of all the parties and aspects of transaction available in a business. At the end of the period (e.g. a month), the accounts are balanced, then these balances are entered into the trial balance to know whether the total of the debit balances and the total of the credit balances are 'balanced'.
BNP Paribas keeps the accounts of all the aspects of transactions that take place in the business. One of the main accounts that are kept in the ledgers of BNP is their customers' accounts; whether they are the deposits accounts or loan accounts (i.e. either the customer is their debtor or creditor). With the help of these ledgers, the trial balance is then produced.
The trial balance shows all the debit and credit balances transferred from the ledger's accounts. If the total debit balances and the total credit balances are the same then the journal entries recorded earlier are probably entered correctly. However if there was an error and the balances were not the same then a mistake has been made in the accounting process. Such mistakes might arise due to several reasons, these include inaccuracies incurred while recording the journal entries, transferring the entries to the ledger accounts, transferring the accounts' balances from the ledgers to the trial balance, some entries might have not been recorded in the journal or ledger, or a ledger's balance was not transferred to the trial balance.
BNP Paribas also maintains the trial balance. This is because trial balance helps BNP to check whether the journal entries kept were entered correctly or have an error. As an error in the trial balance or any of the previous accounting documents will mean that the whole accounting cycle will be inaccurate. This is because data in every accounting document is dependent on the data in the other accounting documents.
The income statement is prepared by all the businesses that use the double-entry book keeping system. The income statement is usually made up of two sections, the 'Trading account' and the 'Profit and Loss Account'. The trading account will calculate the total gross profit; whereas the profit and loss account will calculate the net income.
In BNP Paribas the Profit and Loss account or the Income Statement's format is slightly different. This is because BNP Paribas' income statement should be of a suitable format for a bank. Moreover, BNP Paribas is a multinational corporation, with many operations all over the world; hence their income statement will be different than the ones prepared by the manufacturing companies and different than the ones prepared by retailing businesses.
BNP Paribas' income statement is divided into several sections. The first section calculates the net banking income, and it is the total of all the net incomes calculated in the same section. The net incomes includes net of items like net interest income, net commission income, net gains on trading account securities, net gains on securities available for sale, net other banking income and net income from other activities. Along with the given net incomes, the net banking income also consists of other items like income on equities and other variable income instruments and underwriting result and net investment income of insurance companies. The total of all the given items will be the Net Banking Income.
The next section of the income statement calculates the Gross Operating Income. This is found by subtracting the total operating expenses (like salaries and other administrative expenses) and the depreciation, provision and amortization on tangible and intangible assets from the net banking income.
The third section calculates the Operating Income; which is found by subtracting net additions to provisions for credit and country risk from the gross operating income.
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Then, the next section will calculate the income before tax, non-recurring items, amortization of Goodwill and movement in the reserves in the general banking risks. Then the 'share of earnings of companies carried under the equity method', and the gains on long-term investments and changes in provisions are added to the operating income found in section three.
The final section is used to calculate the Net Income. To add on, for finding the net income all the following items should be added together;
- Net non-recurring expense
- Corporate income tax
- Amortization of Goodwill
- Movements in the reserve for general banking risks
- Minority interests.
In the end of the consolidated profit and loss account of BNP Paribas two more items are shown. These are the Basic earnings per share, and the Diluted earnings per share (in Euros).
The last, but absolutely not the least, section of the book keeping process is the Balance Sheet. This document is considered to be the most important document of the accounting cycle. This is because it shows the overall performance of the business and where the business actually stands.
The balance sheet is usually made up of three sections; the assets, the liabilities and the capital. This is the format of the balance sheet prepared by most of the retailing businesses. However; as a huge multinational corporation with many departments and activities, BNP Paribas' balance sheet is, to some extent, different than the ones with the normal format.
BNP Paribas' balance sheet is divided into two sections; Assets, and Liabilities and Shareholders' equity. In the consolidated balance sheet of BNP, the first section is the Assets' section. In this section the Total Assets are calculated, and the commitments given are shown as well. In order to calculate the total assets the following items should be calculated and then added together;
- Total interbank and money market items
- Total customer items
- Bonds and other fixed income instruments
- Equities and other variable income instruments
- Insurance company investments
- Total Investments in non-consolidated undertakings, and other participating interests and equity securities held for long-term investment
- Total investment in companies carried under the equity methods
- Tangible and intangible assets
- Accrued income and other assets
After the total assets are found, the commitments given are shown.
Then the next section is prepared; the Liabilities section. In this section the total liabilities and the shareholders' equity is calculated. The following items should be calculated and then added together to find the total liabilities and the shareholders' equity;
- Total interbank and money market items
- Customer items
- Total debt securities
- Technical reserves of insurance companies
- Accrued expenses and other liabilities
- Provisions for contingencies and charges
- Subordinated risks
- Reserves for general banking risks
- Minority interests in consolidated subsidiaries
- Total shareholders' equity
After the total liabilities and shareholders' equity is found, the commitments received are shown. This is the final part of BNP Paribas' balance sheet.
A copy of BNP Paribas Group's consolidated profit and loss account, and consolidated Balance Sheet for the year 2004 is shown in the Appendix.
BNP Paribas also prepares other documents and reports like the cash flow statement and statement of returned earnings. The cash flow statement shows the inflow and outflow of cash into and out of the bank; and the statement of retained profits shows the changes in the retained profit of the bank over a specific period of time.
BNP Paribas' Accounting System:
There are two types of accounting system. Single-entry and double-entry book keeping system.
Single-entry book keeping system is such a system where transactions are just written down in a single column account/table. The transactions are just listed with no account for the different types of transactions (for example, is it an expense, asset, etc). Single entry bookkeeping systems are used in order to keep everything simple. It is less expensive as compared to a double entry bookkeeping system in terms of maintenance. This is mainly because such accounting bookkeeping systems do not necessitate a trained employee.
However, since only one aspect of an accounting transaction is recorded in the books of accounting, all necessary information needed by managers for an effective and efficient way of managing a business is usually unavailable. Moreover, unlike a double entry bookkeeping system, a single entry system does not present a verification check against bookkeeping errors. This is one of the most severe drawbacks of a single entry bookkeeping system. Omission of significant data is very likely to happen since most of the items of particular transactions are not recorded in the books of accounts. To add on, robbery and other types of loss of information cannot easily be noticed and discovered with such system. Usually, this type of bookkeeping system directs to an inefficient management of the information recorded in an organization. And searching for such information proves to be very difficult. Such system allows the users to calculate the income of the organization but it doesn't illustrate its financial position.
As mentioned, the drawbacks of single-entry book keeping system overcome its advantages. For this reason, BNP Paribas implements the double-entry book keeping system. This is because; BNP Paribas looks for perfection when coming to keeping the accounting books.
In double-entry book keeping system, every transaction will be recorded according to a certain set of rules and format. Each transaction should affect at least two different accounts. The main and most important advantage of a double entry bookkeeping system is that it takes into account and records both sides of an accounting transaction. That is, the debit as well as the credit side. In other words, a full account of a particular transaction is kept. Because both aspects of an accounting transaction are recorded, the debit side should always equal the credit side. Meaning that, for each debit journal entry, there is a related credit entry, and both sides must have a similar amount. This helps in checking the accuracy of the accounting information recorded. A Trail Balance shows the total amounts of the credit and debit side of all the transactions for a given financial year. Hence, an Income Statement can be prepared very easily because, since both sides of a transaction is available, all the information related to income/expenses/revenues/losses can be used and so the organizations outcome will be determined with complete accuracy. The financial position of an organization can be effortlessly determined by preparing the Balance Sheet. All the information related to assets and liabilities will be used in the process. By using this system, errors can easily be spotted. This applies an ethical pressure on all of the accounting staff in order to get their job done right. Also, this system allows the users to get statistics, which helps in the process of decision-making and allows the organization to operate effectively and efficiently. To add on; every single information available about a particular transaction can be obtained very immediately and without difficulty. For security purposes, the users can make certain that the total amounts of accounts receivable and accounts payable are shown with total accuracy.
On the other hand, nothing is perfect. Hence, as everything else, this book keeping system has few drawbacks. These include that such system is very difficult to understand for a regular person. Whoever is going to work as an accountant and keep track of financial information of an organization that uses a double entry bookkeeping system will surely need training; and training employees adds to the total costs of an organization. As compared to a single entry bookkeeping system, this system is very time-consuming. This is obviously because it records both aspects of an accounting transaction and provides every necessary detail. Moreover, an accountant using such system needs to be extremely careful. This is because errors committed could be very serious and correcting them could be difficult and time-consuming.
Since BNP Paribas Group is a large, Multinational Corporation; and they have a lot of complicated accounts, then they use a computerized system instead of manual system. This is because; a manual double-entry book keeping system will be even more time and effort consuming. To add on, a manual system will be ineffective for such a large international bank as it has a lot of accounts from all over the world, and they all should be in the same format and error free.
BNP Paribas' employees use SAP to prepare the financial statements. SAP is software that helps in preparing financial statements, by recording the transactions and then preparing the reports and accounts at the end of a specific period of time. BNP Paribas uses this software to prepare journals, general and subsidiary ledgers, budgets, etc. SAP also has software that helps the bank in recording the assets it purchased. SAP also helps in preparing the financial reports that include income statement, balance sheet, cash flow statement and statement of retained earnings.
Strengths and Weaknesses of BNP Paribas' Accounting System:
Every accounting system has its own implications, however it differs from each company to another how to take the maximum advantage of the strengths and overcome the weaknesses.
BNP Paribas' accounting system is a very well-organized and highly efficient system. The main reason is because BNP is a very large corporation and since it is based in many countries it is very crucial to have an efficient accounting system. Moreover, unless the accounting system is strong, 100% error free, highly efficient and organized, it is difficult to have high control over the funds available in the bank.
Moreover, journal is an easy form to record the transactions and it has a standardized layout which makes it easy to refer back to it in the future (for example if an error is to be found), otherwise it will be very difficult to find the transactions if they are recorded in different forms, using different methods. To add on, each transaction is recorded in the journal at the same time so there is a less chance that a transaction will be missed out and be omitted from the books of accounting. With the existence of journals, it is very easy to maintain ledgers.
Maintaining ledgers is very useful. This is because all transactions that are related to a person, expense, liability or an asset are recorded separately in an account which makes it easier to be understood and to be referred to whenever needed. These accounts are very beneficial to a bank as they will allow the bank to know how much they own by others, and how much they owe to others. They can also know the value of what they own; how much worth of each asset they have, and how much liability. These accounts will also enable the bank to balance them, and using these balances and account information they can draw up the trial balance, income statement and balance sheet.
Drawing up the trial balance will help the bank to know if the accounts in the ledgers were correct, and if the journal entries recorded were error free or if they had inaccuracies. Moreover, usually a balanced trial balance will allow the bank to go further and prepare an error free and accurate income statement and balance sheet; the most important documents of the accounting cycle.
The income statement measures the performance of a company over a period of time. It shows the overall profit of the company over a period of time and it also shows the exact details of the accounting transactions that took place over the same period. The bank can also know all the expenses that it incurred while generating the revenues that it earned.
By preparing the balance sheet the bank can know where it stands financially. Moreover, balance sheets enable the bank to know how much it grew over a period of time; by comparing the balance sheets with the balance sheet of the previous years. To add on, there are many important ratios that show where a business actually stands on many bases; for instance acid test ratio which shows how liquid the bank is. Therefore, by preparing a balance sheet, such ratios can be calculated (current ratio, acid test ratio, return on equity etc).
To add on, by preparing the cash flow statement, BNP will be able to find out the exact amount of cash entering and leaving the bank. This will help the bank in forecasting if there is going to be any cash problems in the near future. Preparing cash flow statements is very important since cash is the life blood of every organization.
On the other hand, as there are strengths of the accounting system used by BNP, there are also few weaknesses. These weaknesses include that if the trial balance was balanced it does not prove that it is error free. Errors such as error of omission, error of commission, compensating errors, and so on might occur but they will not be known, as the trial balance is not affected by such errors and this will lead to inaccurate final accounts.
Moreover, balance sheets do not give the current value of the assets and liabilities; since they are prepared once a year. Hence, if any comparison has to be done then the value of the assets and liabilities are not the current value, instead it's the value of the assets and liabilities at the end of the previous financial year; when the balance sheet was drawn.
Recommendation and Conclusion:
However, BNP Paribas has a very strong accounting system; hence the weaknesses are certainly being overcome. For instance the problem of the un-identified errors is solved by the existence of auditors. BNP Paribas Bahrain has two sets of auditors; internal and external auditors. These auditors help to show the true and fair image of the accounts. Therefore, if any error that has no effect on the trial balance exists, the auditors will help in finding them out.
The other problem of the final accounts is solved, as BNP Paribas prepares the final accounts more than once a year. In this way, the assets and liabilities values are more up-to-date and show a more true value.
BNP Paribas is very cautious when it comes to preparing the accounts. This is due to many reasons. One of the major reasons is because these accounts are published to the public over a period of time, since BNP Paribas is a public limited company. BNP Paribas issue reports twice every 6 months during the financial year. Their financial year ends on the 31st of December of every year. Moreover, the accounts are discussed in the Annual General Meetings, thus if any error or misleading figure exists the bank might be sued and this will cost them a lot. For this reason, auditors constantly audit the bank accounts to make sure that they are accurate and error free. BNP makes full use of the strengths of its accounting system and takes the maximum precautions to avoid its weaknesses.
BNP Paribas makes the maximum use of its final accounts. The following figures were published by BNP Paribas from and using the final accounts;
Figures of 2009 (All BNP corporations)
- Revenues: £40,191 million
- Gross operating income: £16,851 million
- Net income group share: £5,832 million
- Earnings per share: £5.20
- Return on equity: 10.8 %
- Market capitalization: £66.2 billion
BNP Paribas prepares all the accounts; journals, ledgers, trial balance, income statement and balance sheet. Moreover, BNP also prepares reports that show the results of core businesses. They prepare the reports that show the pre-tax income of several branches and divisions. These reports also show the % change in some of the figures; like the net banking income, gross operating income etc, over the period of a year. A copy of such report is shown in the appendix.
BNP Paribas also prepares the other accounting documents, such as control accounts, provision for doubtful debts, etc. There are 30 employees working in the finance department of BNP Paribas Bahrain. These 30 employees put their full efforts in preparing these final accounts. Their efforts double during the end of the financial period; end of December. This proves the importance of maintaining an efficient and well-organized accounting system in BNP Paribas Bahrain.
Source of quote - http://www.bnpparibas.bh/en/corporate_institutional_services/financial_bank.asp