The directors consider it appropriate to adopt the going concern basis of accounting in preparing the annual financial statements. The impact of COVID-19 and the current economic environment has been considered as part of the going concern assessment. Forecast liquidity has been assessed under a number of stressed scenarios performed to support this assertion. Reverse stress tests performed indicated that the group will continue to operate as a going concern for at least 12 months from the balance sheet date even if the Brent price fell to zero.

BP prepares its consolidated financial statements included within BP Annual Report and Form 20-F on the basis of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (EU) and in accordance with the provisions of the UK Companies Act 2006 as applicable to companies reporting under international accounting standards. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. The differences have no impact on the group's consolidated financial statements for the periods presented.

The financial information presented herein has been prepared in accordance with the accounting policies expected to be used in preparing BP Annual Report and Form 20-F 2020 which are the same as those used in preparing BP Annual Report and Form 20-F 2019 with the exception of the changes described in the 'Updates to significant accounting policies' section below. There are no other new or amended standards or interpretations adopted from 1 January 2020 onwards that have a significant impact on the financial information.

Considerations in respect of COVID-19 and the current economic environment BP's significant accounting judgements and estimates were disclosed in BP Annual Report and Form 20-F 2019. These have been subsequently reviewed at the end of each quarter to determine if any changes were required to those judgements and estimates as a result of current market conditions. The valuation of certain assets and liabilities is subject to a greater level of uncertainty than when reported in BP Annual Report and Form 20-F 2019, including those set out below.

Impairment testing assumptions BP sees the prospect of an enduring impact on the global economy as a result of the COVID-19 pandemic, with the potential for weaker demand for energy for a sustained period. BP's management also expects that the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy and energy system as countries seek to 'build back better' so that their economies will be more resilient in the future. As a result of all the above, during the second quarter, BP revised its price assumptions for value-in-use impairment testing, lowering them and extending the period covered to 2050. A summary of the group's revised price assumptions, in real 2020 terms, is provided below: 


                             2021 2025 2030 2040 2050 
Brent oil (USD/bbl)              50   50   60   60   50 
Henry Hub gas (USD/mmBtu)      3.00 3.00 3.00 3.00 2.75 As disclosed in BP Annual Report and Form 20-F 2019 - Note 1, the majority of BP's reserves and resources that support the carrying amount of the group's Upstream oil and gas properties are expected to be produced over the next ten years. The revised assumptions for Brent oil and Henry Hub gas for the next 10 years are lower by approximately 29% and 17%, respectively, than the average prices used to estimate cash flows over this period as disclosed in BP Annual Report and Form 20-F 2019 - Note 1. The revised impairment testing price assumptions are lower, on average, by approximately 27% and 31% respectively for the period from 2021 to 2050, than the prices referenced in BP Annual Report and Form 20-F 2019 - Note 1.

The group has identified Upstream oil and gas properties with carrying amounts totalling approximately USD45 billion where the headroom, based on the most recent impairment tests performed, was less than or equal to 20% of the carrying value. A change in price or other assumptions within the next financial year may result in a recoverable amount of one or more of these assets above or below the current carrying amount and therefore there is a significant risk of impairment reversals or charges in that period.

The discount rates used in value-in-use impairment testing were also formally reassessed in the fourth quarter. Despite changing economic and geopolitical outlooks, as the discount rates are set using a number of parameters that are applicable to longer-term assets, the post-tax discount rate, as disclosed in BP Annual Report and Form 20-F 2019, remains unchanged. Pre-tax discount rates typically ranged from 7% to 15% (2019 7% to 13%). Post-tax premiums for certain higher-risk countries are 1% to 3% (2019 1% to 4%). The revisions to these rates did not have a material impact.

Provisions The nominal risk-free discount rate applied to provisions is reviewed on a quarterly basis. Recent changes in long-dated US government bond yields have not affected the group's overall assessment of the discount rate applied to the group's provisions and therefore the rate, as disclosed in BP Annual Report and Form 20-F 2019, remains unchanged. The timing and amount of cash flows relating to the group's existing provisions were reviewed during the fourth quarter and did not change significantly compared to the provisions balance reported as at 31 December 2019.

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Note 1. Basis of preparation (continued)

Pensions and other post-retirement benefits The group's defined benefit pension plans are reviewed quarterly to determine any changes to the fair value of the plan assets or present value of the defined benefit obligations. As a result of the review during the fourth quarter of 2020, the group's total net defined benefit pension plan deficit as at 31 December 2020 is USD1.3 billion, a reduction in the deficit of USD0.6 billion and USD0.2 billion from 30 September 2020 and 31 December 2019 respectively. This reduction in deficit and the overall actuarial gains of USD0.3 billion during 4Q were predominantly driven by the adoption of approved assumption changes. The impact of further decreases in the UK, US and Eurozone discount rates were largely offset by asset performance and reduction in inflation rates. The current environment is likely to continue to affect the values of the plan assets and obligations resulting in potential volatility in the amount of the net defined benefit pension plan surplus/deficit recognized.

Impairment of financial assets measured at amortized cost The estimate of the loss allowance recognized on financial assets measured at amortized cost using an expected credit loss approach was determined not to be a significant accounting estimate in preparing BP Annual Report and Form 20-F 2019. Expected credit loss allowances are, however, reviewed and updated quarterly. Allowances are recognized on assets where there is evidence that the asset is credit-impaired and on a forward-looking expected credit loss basis for assets that are not credit-impaired. The current economic environment and future credit risk outlook have been considered in updating the estimate of loss allowances although the full economic impact of COVID-19 on the forward-looking expected credit loss is subject to significant uncertainty due to the limited forward-looking information currently available.

Whilst credit risk has increased since 31 December 2019, there has also been a significant reduction in the group's trade and other receivables balance. Therefore, the total expected credit loss allowances recognized as at 31 December 2020 have not significantly increased from the amounts disclosed in BP Annual Report and Form 20-F 2019 - Financial statements - Note 21 Valuation and qualifying accounts.

The group continues to believe that the calculation of expected credit loss allowances is not a significant accounting estimate. The group continues to apply its credit policy as disclosed in BP Annual Report and Form 20-F 2019 - Financial statements - Note 29 Financial instruments and financial risk factors - credit risk.

Income taxes None of the group's deferred tax assets in BP Annual Report and Form 20-F 2019 were determined to be a significant accounting estimate. The carrying amounts are, however, reviewed and updated quarterly to the extent that there are changes in the probability of sufficient taxable profits being available to utilize the reported deferred tax assets. The group has recognized deferred tax assets as at 31 December 2020 of USD7.7 billion, an increase of USD3.1 billion from 31 December 2019. The group continues to believe that the measurement of its deferred tax assets is not a significant accounting estimate.

Other accounting judgements and estimates All other significant accounting judgements and estimates disclosed in BP Annual Report and Form 20-F 2019 remain applicable and no new significant accounting judgements or estimates have been identified specifically arising from the impact of COVID-19.

Updates to significant accounting policies Hybrid bond issuance On 17 June 2020, a group subsidiary issued perpetual subordinated hybrid bonds in EUR, GBP and USD for a US dollar equivalent amount of USD11.9 billion. As the group has the unconditional right to avoid transferring cash or another financial asset in relation to these hybrid bonds, they are classified as equity instruments and reported within non-controlling interests in the condensed consolidated financial statements. The contractual terms of these instruments allow the group to defer coupon payments and the repayment of principal indefinitely, however their terms and conditions stipulate that any deferred payments must be made in the event of an announcement of an ordinary share or parity equity dividend distribution or certain share repurchases or redemptions.

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