Bank of Montreal 2010 Annual Report Download - page 75

MD&A
We expect to complete our assessment of our U.S. customer
securitization vehicle and our Canadian customer securitization vehicles
and other less significant VIEs in the first and second quarters of 2011.
If we were to consolidate our U.S. customer securitization vehicle and/or
our Canadian customer securitization vehicles, we do not expect that this
would result in any significant adjustment to opening retained earnings
on November 1, 2010, the beginning of our comparative year.
The IASB is scheduled to release a revised consolidation standard
in 2011. It is unclear when adoption will be required; however, we expect
that the existing consolidation standard will remain in place when the
bank transitions to IFRS in 2012.
Accumulated Other Comprehensive Loss on Translation of
Foreign Operations
On transition to IFRS, we can either recalculate translation differences
on an IFRS basis as though we had always applied the IFRS requirements
or reset the accumulated other comprehensive loss on translation of net
foreign operations to zero.
We expect to elect to reset our accumulated other comprehensive
loss on translation of net foreign operations to zero. The impact on the
bank’s balance sheet will be an increase of approximately $1,100 million
in accumulated other comprehensive income and a corresponding
reduction in retained earnings of approximately $1,100 million on
November 1, 2010, the beginning of our comparative year. There will
be no regulatory capital impact associated with this change.
IFRS 1 – First-Time Adoption of IFRS
IFRS 1 is a financial reporting standard that provides the framework for
the transition to IFRS. The general principle under IFRS 1 is retroactive
application, such that our opening balance sheet for the comparative year
financial statements is to be restated as though the bank had always
applied IFRS with the net impact shown as an adjustment to opening
retained earnings. However, IFRS 1 contains certain mandatory exceptions
and permits certain optional exemptions from full retroactive application.
The mandatory exceptions include hedge accounting. We will not look
back in time to determine whether we complied with IFRS hedge
accounting requirements prior to transition. As long as we comply with
IFRS on November 1, 2010, we can continue our hedge accounting without
interruption. We have completed our assessment and have made the
necessary changes so that hedge accounting will continue under IFRS.
We are currently evaluating the optional exemptions under IFRS 1,
the most significant of which are discussed in the following sections.
Business Combinations
The IFRS business combinations standard (IFRS 3) provides guidance on
the measurement and recognition of business acquisitions that differs
from the guidance under Canadian GAAP.
IFRS requires all costs related to acquisition and restructuring to be
expensed. Canadian GAAP permits the capitalization of certain of these
costs. In addition, when consideration is paid to the seller in the form
of shares issued by the buyer, the consideration is valued based on the
market price of the shares at the closing date. Under Canadian GAAP,
that valuation is based on an average of the market price of the shares
over a reasonable period before and after the date the terms of the
acquisition are agreed to and announced. These differences would affect
the purchase price allocation, including the amount of goodwill recorded.
IFRS 1 permits the application of the requirements in IFRS 3 to
business acquisitions that are completed after the transition to IFRS
(November 1, 2010) or retroactively back to a date of our choosing.
Should we choose to adopt and apply IFRS 3 retroactively, we would be
required to restate all past acquisitions from the date chosen up to our
transition date.
Pension and Other Employee Future Benefits
Details on the options available can be found in the preceding section,
Identification of Differences between the Bank’s Current Accounting
Policies and the Requirements under IFRS.
Accumulated Other Comprehensive Loss on Translation
of Foreign Operations
Details on the options available can be found in the preceding section,
Identification of Differences between the Bank’s Current Accounting
Policies and the Requirements under IFRS.
Internal Controls over Financial Reporting and Disclosure
We have determined that there will not be a significant impact on our
internal controls over financial reporting and our disclosure controls and
procedures resulting from the transition to IFRS. We will develop internal
controls over tracking and communicating IFRS-based information for
the IFRS comparative year, changes in the accounting treatment of the
bank’s VIEs and securitized loans and certain additional disclosure
requirements in the notes to the financial statements. These internal
control modifications will be a key area of focus in the third and final
phase of the transition, which begins in the first quarter of 2011.
Business Activities
On an ongoing basis, we assess whether there will be any impact
on our business activities as we progress through our implementation
activities. We are reviewing loan agreements and related loan covenant
ratios in situations where our loan customers are also adopting IFRS.
To date, we have not identified any other significant impacts on existing
business activities that will result from adopting IFRS.
Information Technology
We have completed a detailed assessment of our existing financial
information technology architecture and determined that no significant
changes are required as a result of our transition to IFRS. We have
developed a technology-based solution in the form of a comparative
reporting tool that will track IFRS-based financial information during
the comparative year. This will not require any significant modification
to our existing financial reporting systems. The comparative reporting
tool is currently undergoing testing and will be operational in the first
quarter of 2011.
Financial Reporting Expertise and Governance
An internal IFRS educational program was launched in 2009 to ensure
appropriate financial reporting expertise and governance when the bank
begins to report on an IFRS basis. During 2009, detailed technical sessions
relating to our findings in Phase I were presented to all our accounting
and finance staff as well as certain other functional groups across the
enterprise that may be affected by the transition to IFRS. We also launched,
in 2009, training and awareness programs for our credit personnel
who need to understand the impact of IFRS as they relate to any loan
or credit customers that may also be adopting IFRS. In 2010, updated
technical sessions were provided to the bank’s accounting and finance
staff and other groups directly impacted by the conversion to IFRS.
Quarterly educational sessions on specific IFRS topics were presented
to the Audit Committee of our Board of Directors in 2009 and 2010.
Phase III – Completion of Integration Changes
We are developing a detailed plan for the third and final phase of the
transition, the completion of all integration changes, which is scheduled
to commence in 2011. This will include the development of controls and
procedures necessary to restate our 2011 opening balance sheet and
financial results on an IFRS basis in preparation for the transition to IFRS
in fiscal 2012, finalizing decisions on policy options available under IFRS
(such as exemptions from applying certain IFRS requirements on a retro-
active basis), the development of plans to communicate to our internal
and external stakeholders and an assessment of impacts on our internal
management reporting processes, including planning and forecasting.
Caution
This Future Changes in Accounting Policies – IFRS section contains forward-looking statements.
Please see the Caution Regarding Forward-Looking Statements.
BMO Financial Group 193rd Annual Report 2010 73