Bank of Montreal 2012 Annual Report Download - page 180

Notes
Note 30: Transition to International Financial Reporting Standards
The differences between our Canadian GAAP accounting policies and
IFRS requirements, combined with our decisions on the optional
exemptions from retroactive application of IFRS, resulted in
measurement and recognition differences on transition to IFRS. The net
impact of these differences was recorded in opening retained earnings
as of November 1, 2010, affecting equity, with the exception of the
accumulated other comprehensive loss on the translation of foreign
operations (described below under cumulative translation differences),
as this was already recorded in equity. These impacts also extend to our
capital ratios, with the exception of the change related to accumulated
other comprehensive loss on translation of foreign operations, which
had no impact on our capital ratios. The impact on Basel II ratios will be
phased in over five quarters.
The following is a discussion of our first-time adoption transition
elections under IFRS 1, the standard for first-time adoption, and the
significant accounting changes resulting from our adoption of IFRS. The
general principle under IFRS 1 is retroactive application, such that our
opening balance sheet as at November 1, 2010 was restated as though
we had always applied IFRS, with the net impact shown as an
adjustment to opening retained earnings. However, IFRS 1 contains
mandatory exceptions and permits certain optional exemptions from full
retroactive application. In preparing our opening consolidated balance
sheet in accordance with IFRS 1, we have applied certain of the optional
exemptions and the mandatory exceptions from full retroactive
application of IFRS as described below.
Exemptions from Full Retroactive Application Elected
We have elected to apply the following optional exemptions from full
retroactive application:
‰Pension and other employee future benefits – We have elected to
recognize all cumulative actuarial gains and losses, as at November 1,
2010, in opening retained earnings for all of our employee benefit plans.
‰Business combinations – We have elected not to apply IFRS 3, the
current standard for accounting for business combinations,
retroactively in accounting for business combinations that took place
prior to November 1, 2010.
‰Share-based payment transactions – We have elected not to
retroactively apply IFRS 2, the standard for accounting for share-based
payments, in accounting for equity instruments granted on or before
November 7, 2002, and equity instruments granted after November 7,
2002, that have vested by the transition date. We have also elected
not to retroactively apply IFRS 2 in accounting for liabilities arising
from cash-settled share-based payment transactions that were settled
prior to the transition date.
‰Cumulative translation differences – We have elected to reset the
accumulated other comprehensive loss on translation of foreign
operations to $nil at the transition date, with the adjustment recorded
in opening retained earnings.
‰Designation of previously recognized financial instruments – We have
elected to designate $3,477 million of Canada Mortgage Bonds as
available-for-sale securities on the transition date. Available-for-sale
securities are measured at fair value with unrealized gains and losses
recorded in accumulated other comprehensive income (loss). These
bonds were previously designated as held for trading under Canadian
GAAP and were measured at fair value with changes in fair value
recorded in trading revenues. These bonds provided an economic
hedge associated with the sale of the mortgages through a third-party
securitization program, which were derecognized under Canadian
GAAP. Under IFRS, this economic hedge is no longer required as these
mortgages will remain on our balance sheet.
‰Insurance contracts – IFRS 1 provides the option to apply the
transitional provisions in IFRS 4, Insurance Contracts, which allow us to
follow our existing accounting policies related to our insurance related
activities, as described in Note 16.
Mandatory Exemptions to Retroactive Application
We have applied the following mandatory exceptions to full retroactive
application:
‰Hedge accounting – Only hedging relationships that satisfied the
hedge accounting criteria of IFRS as of the transition date are recorded
as hedges in our results under IFRS.
‰Estimates – Hindsight was not used to create or revise estimates, and
accordingly, the estimates previously made by us under Canadian
GAAP are consistent with their application under IFRS.
‰Derecognition of financial assets and financial liabilities – We applied
retroactively to transfers that occurred on or after January 1, 2004.
BMO Financial Group 195th Annual Report 2012 177