Bank of Montreal 2010 Annual Report Download - page 170

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes
168 BMO Financial Group 193rd Annual Report 2010
Accounting Standards Board (“FASB”). Under this new standard, all
non-controlling interests held by parties other than the parent entity are
reported as equity for United States GAAP reporting purposes. Under
Canadian GAAP, all non-controlling interests are reported as other liabilities.
A continuity of non-controlling interest recorded in equity for
the years ended October 31, 2009 and 2010 is as follows:
(Canadian $ in millions)
Non-controlling interest in subsidiaries, November 1, 2008 2,550
Net income attributable to non-controlling interest (155)
Change in non-controlling interest ownership 110
Non-controlling interest in subsidiaries, October 31, 2009 2,505
Net income attributable to non-controlling interest (145)
Change in non-controlling interest ownership (222)
Non-controlling interest in subsidiaries, October 31, 2010 2,138
(o) Other-than-Temporary Impairment
Effective May 1, 2009, we adopted the new FASB guidance that amended
the impairment assessment and recognition principles of other-than-
temporary impairment for debt securities and enhanced the presentation
and disclosure requirements for debt and equity securities. Under the new
guidance, if a debt security is determined to be other-than-temporarily
impaired, the amount of the impairment charge equal to the credit loss
will be recorded in income and the remaining impairment charge will
be recorded in accumulated other comprehensive income. Under Canadian
GAAP, all impairment is recorded in income.
As a result of the adoption of this new guidance, we recorded a
cumulative-effect adjustment to reclassify $24 million before tax ($16 mil-
lion after tax) from retained earnings to accumulated other comprehensive
income as of May 1, 2009 for United States GAAP reporting purposes.
During the year ended October 31, 2010, we recorded total other-than-
temporary impairment losses of $36 million after taxes of $15 million
($351 million after taxes of $113 million in 2009), of which $34 million
($339 million in 2009) were recorded in income and $2 million ($12 million
in 2009) were recorded in accumulated other comprehensive income.
A continuity of the credit losses recorded in income before tax
on available-for-sale debt securities held at year end is as follows:
(Canadian $ in millions) 2010 2009
Balance, beginning of year (286) –
Credit impairments recognized in earnings
on debt securities not previously
determined to be impaired (38) (296)
Credit impairments recognized in earnings
on debt securities that have previously
been determined to be impaired (3) (13)
Reduction for securities that were sold or
matured during the year 41 23
Balance, end of year (286) (286)
Under Canadian GAAP, impairment losses recorded against net income
relating to an available-for-sale debt security may be reversed through
net income if the fair value of the security increases in a subsequent
period and the increase can be objectively related to an event occurring
after the impairment loss was recognized in net income. This is not
permitted under United States GAAP.
(p) Business Combinations
Under United States GAAP, acquisition-related costs, except costs to issue
debt or equity securities, are recorded as expenses in the period in which
the costs are incurred. Under Canadian GAAP, acquisition-related costs
are included in the cost of the purchase.
(q) Software Development Costs
Under United States GAAP, costs of internally developed software are
required to be capitalized and amortized over the expected useful life
of the software. Under Canadian GAAP, prior to November 1, 2003,
only costs related to internally developed software paid to third parties
were capitalized and amortized over the expected useful life of the
software. Effective November 1, 2003, we adopted a new Canadian
accounting standard that eliminated this difference for software develop-
ment costs incurred after October 31, 2003. There was an adjustment
to our Consolidated Statement of Income in the periods before fiscal 2009,
when the software development costs capitalized prior to fiscal 2004
were fully amortized.
(r) Restricted Net Assets
Certain of our subsidiaries and equity investments are subject to regula-
tory requirements of the jurisdictions in which they operate. As a result,
these subsidiaries and equity investees may be restricted from transferring
to us our proportionate share of their assets in the form of cash dividends,
loans or advances. At October 31, 2010 and 2009, restricted net assets
of these subsidiaries were $6.2 billion and $5.9 billion, respectively.
Changes in Accounting Policy
Convertible Debt Instruments
Effective November 1, 2009, new guidance was issued by the FASB
on the accounting for convertible debt instruments that may be settled
in cash (or other assets) upon conversion, including partial cash settle-
ment. This new guidance requires that we account for the liability
and equity components separately. This guidance did not have any impact
on our United States GAAP reconciliation because we do not have any
convertible debt instruments, as all of our convertible preferred shares
and capital trust securities are classified as equity instruments under
United States GAAP.
Future Changes in Accounting Policy
Accounting for Transfers of Financial Assets
The FASB has issued a new standard on the accounting for transfers of
financial assets that removes the concept of a qualifying special-purpose
entity (“QSPE”). The new standard also creates more stringent conditions
for reporting the transfer of a portion of a financial asset as a sale.
This standard will impact some of the mortgages and credit card receiv-
ables we securitize to QSPEs. These QSPEs will be consolidated under
the new guidance on the Consolidation of Variable Interest Entities (see
below). This standard is effective November 1, 2010 for United States
GAAP reporting purposes.
Amendments to Guidance on the Consolidation of Variable Interest Entities
The FASB has issued a new standard that changes the criteria by which
an enterprise determines whether it must consolidate a variable interest
entity (“VIE”). This new standard amends the existing guidance to require
an enterprise to consolidate a VIE if it has both the power to direct the
activities that most significantly affect the VIE’s economic performance
and the obligation to absorb losses or the right to receive benefits from
the
VIE. Existing guidance requires an enterprise to consolidate a VIE
if it absorbs a majority of the expected losses or residual returns, or both.
A continuous assessment of which party must consolidate a VIE will
be required, rather than an assessment only when certain trigger events
occur. In addition, the new standard requires an enterprise to assess if
VIEs that were previously QSPEs must be consolidated by the enterprise.
We have not finalized our assessment of the impact associated with
this amendment. This standard is effective Novem ber 1, 2010 for United
States GAAP reporting purposes.
Credit Quality of Financing Receivables and the Allowance for Credit Losses
The FASB has issued new disclosure requirements that increase the level
of disclosure about the credit quality of loans and receivables and the
allowance held against them. This guidance requires the bank to provide
greater levels of dis aggregation for existing credit loss information.
Other new disclosures include aging of past due receivables, credit quality
information such as credit risk scores or external credit agency ratings,
and the modification of our financing receivables. This requirement is
effective November 1, 2010 for United States GAAP reporting purposes.