Bank of Montreal 2012 Annual Report Download - page 127

Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation
Bank of Montreal (“the bank”), is a public company incorporated in
Canada having its registered office in Montreal, Canada. We are a
highly diversified financial services provider and provide a broad range
of retail banking, wealth management and investment banking products
and services.
We have prepared these financial statements in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”). This is our first year
of reporting in accordance with IFRS, and accordingly IFRS 1 First-time
Adoption of International Financial Reporting Standards has been
applied. We also comply with interpretations of IFRS by our regulator,
the Office of the Superintendent of Financial Institutions Canada (“OSFI”).
Our consolidated financial statements were previously prepared in
accordance with Canadian generally accepted accounting principles
(“Canadian GAAP”), as previously defined and as described in the notes
to our consolidated financial statements for the year ended October 31,
2011, on pages 119 to 180 of our 2011 Annual Report. Canadian GAAP,
as previously defined, differs from IFRS in some areas. To comply with
IFRS, we have amended certain accounting policies, classifications,
measurements, presentations and disclosures previously applied in the
Canadian GAAP financial statements.
As required under IFRS, we have:
‰provided comparative financial information, including an opening
balance sheet as at the transition date;
‰retroactively applied all IFRS, other than in respect of elections taken
under IFRS 1; and
‰applied all mandatory exceptions as applicable for first-time adopters
of IFRS.
Note 30 contains reconciliations and descriptions of the effects of the
transition from Canadian GAAP to IFRS in the Consolidated Statement
of Income, Consolidated Statement of Comprehensive Income,
Consolidated Balance Sheet, Consolidated Statement of Changes in
Equity and Consolidated Statement of Cash Flows.
Our consolidated financial statements have been prepared on a
historic cost basis, except the revaluation of the following items: assets
and liabilities held for trading; financial instruments designated at fair
value through profit or loss; available-for-sale financial assets; financial
assets and financial liabilities designated as hedged items in qualifying
fair value hedge relationships; cash-settled share-based payment
liabilities, defined benefit pension and other employee future benefit
liabilities; and insurance-related liabilities.
These consolidated financial statements were authorized for issue
by the Board of Directors on December 4, 2012.
Basis of Consolidation
These consolidated financial statements are inclusive of the financial
statements of our subsidiaries as at October 31, 2012. We conduct
business through a variety of corporate structures, including subsidiaries,
joint ventures, associates and special purpose entities (“SPEs”).
Subsidiaries are those where we exercise control through our ownership
of the majority of the voting shares. Joint ventures are those where we
exercise joint control through an agreement with other shareholders.
We also hold interests in SPEs, which we consolidate where we control
the SPE. These are more fully described in Note 9. All of the assets,
liabilities, revenues and expenses of our subsidiaries, consolidated SPEs
and our proportionate share of the assets, liabilities, revenues and
expenses of our joint venture are included in our consolidated financial
statements. All significant intercompany transactions and balances
are eliminated.
We hold investments in associates, where we exert significant
influence over operating, investing and financing decisions (companies
in which we own between 20% and 50% of the voting shares). These
are recorded at cost and are adjusted for our proportionate share of any
net income or loss, other comprehensive income or loss and dividends.
They are recorded as securities, other in our Consolidated Balance Sheet
and our proportionate share of the net income or loss of these
companies is recorded in interest, dividend and fee income, securities,
in our Consolidated Statement of Income.
Non-controlling interest in subsidiaries is presented in the
Consolidated Balance Sheet as a separate component of equity that is
distinct from our shareholders’ equity. The net income attributable to
non-controlling interest in subsidiaries is presented separately in the
Consolidated Statement of Income. Included in non-controlling interest
in subsidiaries as at October 31, 2012 were capital trust securities
including accrued interest totalling $1,060 million ($1,085 million in
2011) and 7.375% preferred shares of US$250 million (US$250 million in
2011) issued by Harris Preferred Capital Corporation, a U.S. subsidiary,
that form part of our Tier 1 regulatory capital.
Specific Accounting Policies
To facilitate a better understanding of our consolidated financial
statements, we have disclosed our significant accounting policies
throughout the following notes with the related financial disclosures by
major caption:
Note Topic Page Note Topic Page
1 Basis of Presentation 124 18 Capital Trust Securities 154
2 Cash Resources and Interest
Bearing Deposits with Banks 127
19
20
Interest Rate Risk
Share Capital
154
156
3 Securities 127 21 Capital Management 157
4 Loans, Customers’ Liability
under Acceptances and
Allowance for Credit Losses 131
22
23
Employee Compensation –
Stock-Based Compensation
Employee Compensation –
158
5
6
Other Credit Instruments
Risk Management
134
134
Pension and Other Employee
Future Benefits 160
7 Guarantees 137 24 Income Taxes 164
8 Asset Securitization 138 25 Earnings Per Share 166
9
10
Special Purpose Entities
Derivative Instruments
139
140
26 Operating and Geographic
Segmentation 167
11 Premises and Equipment 147 27 Related Party Transactions 168
12
13
Acquisitions
Goodwill and Intangible Assets
148
149
28 Provisions and Contingent
Liabilities 169
14
15
Other Assets
Deposits
150
151
29 Fair Value of
Financial Instruments 170
16 Other Liabilities 152 30 Transition to International
Financial Reporting Standards 17717 Subordinated Debt 153
Translation of Foreign Currencies
We conduct business in a variety of foreign currencies and present our
consolidated financial statements in Canadian dollars, which is our
functional currency. Monetary assets and liabilities, as well as
non-monetary assets and liabilities measured at fair value that are
denominated in foreign currencies are translated into Canadian dollars at
the exchange rate in effect at the balance sheet date. Non-monetary
assets and liabilities not measured at fair value are translated into
Canadian dollars at historical rates. Revenues and expenses
denominated in foreign currencies are translated using the average
exchange rate for the year.
Unrealized gains and losses arising from translating net investments
in foreign operations into Canadian dollars, net of related hedging
activities and applicable income taxes, are included in our Consolidated
Statement of Comprehensive Income within net gain (loss) on translation
of net foreign operations. When we dispose of a foreign operation such
that control, significant influence or joint control is lost, the cumulative
amount of the translation gain (loss) and any applicable hedging activity
and related income taxes are reclassified to profit or loss as part of the
gain or loss on disposition. All other foreign currency translation
124 BMO Financial Group 195th Annual Report 2012