Bank of Montreal 2012 Annual Report Download - page 76

MD&A
Changes in Accounting Policies in 2012
Fiscal 2012 was our first year of preparing BMO’s consolidated financial
statements in accordance with International Financial Reporting Stan-
dards (IFRS). Significant accounting policies under IFRS are described in
Note 1 on page 124 of the financial statements, together with a dis-
cussion of certain accounting estimates that are considered particularly
important as they require management to make significant judgments,
some of which relate to matters that are inherently uncertain. Readers
are encouraged to review that discussion. The consolidated financial
statements for comparative periods have been restated to conform to
the current presentation. Our consolidated financial statements were
previously prepared in accordance with Canadian GAAP as defined at
that time. Changes in accounting policies that are a result of conforming
to IFRS are described more fully in Note 30 on page 177 of the
financial statements.
Future Changes in Accounting Policies
Employee Benefits
The International Accounting Standards Board (IASB) has revised the
standard for employee benefits. Actuarial gains and losses will be
recognized immediately in other comprehensive income and may no
longer be deferred and amortized. Under the revised standard, service
costs and net investment income (expense), which is calculated by
applying the discount rate to the net benefit asset (liability), will be
recorded in income. As a result, a funding deficit will result in interest
expense and a funding surplus will result in interest income, reflecting
the financing effect of the amount owed to or by the plan. Under the
existing standard, interest income could be earned on a plan with a
funding deficit if the expected return on assets exceeded the interest
cost on the benefit liability. This new standard is effective for our fiscal
year beginning November 1, 2013. We are assessing the impact of this
revised standard on our future financial results and on our capital ratios.
Fair Value Measurement
The IASB has issued a new standard for fair value measurement that
provides a common definition of fair value and establishes a framework
for measuring fair value. This new standard is effective for our fiscal
year beginning November 1, 2013. We do not expect this new standard
to have a significant impact on how we determine fair value.
Consolidated Financial Statements
The IASB has issued a new standard for consolidation that will replace
the existing standard. This new standard provides a single consolidation
model that identifies control as the basis for consolidation for all types
of entities. This new standard is effective for our fiscal year beginning
November 1, 2013. We are currently assessing the impact of this new
standard on our future financial results.
Investments in Associates and Joint Ventures
The IASB issued a new standard on accounting for investments in joint
ventures to require that they be accounted for using the equity method.
The new standard is effective for our fiscal year beginning November 1,
2013. We do not expect this new standard to have a significant impact
on our future financial results.
Offsetting Financial Assets and Financial Liabilities
The IASB has issued amendments to the standards for the classification
and disclosure of financial instruments that clarify that an entity has a
legally enforceable right to offset if that right is not contingent on a
future event; and enforceable both in the normal course of business and
in the event of default, insolvency or bankruptcy of the entity and all
counterparties. These amendments also contain new disclosure
requirements for financial assets and financial liabilities that are offset in
the statement of financial position or subject to master netting agree-
ments or similar agreements. The disclosure amendments are effective
for our fiscal year beginning November 1, 2013, and the classification
amendments are effective for our fiscal year beginning November 1,
2014. We are currently assessing the impact of these amendments on
our presentation and disclosure.
Disclosure of Interests in Other Entities
The IASB has issued a new standard for the disclosure requirements for
all forms of interest in other entities, including subsidiaries, joint
arrangements, associates and unconsolidated structured entities. This
new standard requires disclosure of the nature of, and risks associated
with an entity’s interests in other entities and the effects of these inter-
ests on its financial position, financial performance and cash flows. This
new standard is effective for our fiscal year beginning November 1,
2013. We are currently assessing the impact of this new standard on our
future financial disclosures.
Financial Instruments
The IASB has released a new standard for the classification and
measurement of financial assets and financial liabilities. This is the first
phase of a three-phase project to replace the current standard for
accounting for financial instruments. The new standard specifies that
financial assets are measured at either amortized cost or fair value on
the basis of the reporting entity’s business model for managing the
financial assets and the contractual cash flow characteristics of the
financial assets. The classification and measurement of financial
liabilities remain generally unchanged; however, fair value changes
attributable to changes in the credit risk for financial liabilities des-
ignated at fair value through profit or loss are to be recorded in other
comprehensive income unless the change is offset in the income state-
ment. The other phases of this project, which are currently under devel-
opment, address impairment and hedge accounting. The IASB has
deferred the effective date of this new standard for two years from the
originally proposed effective date, which will make it effective for our
fiscal year beginning November 1, 2015. We are currently assessing the
impact of this new standard on our future financial results in conjunction
with the completion of the other phases of the IASB’s financial instru-
ments project.
Caution
This Future Changes in Accounting Policies section contains forward-looking statements. Please see
the Caution Regarding Forward-Looking Statements.
BMO Financial Group 195th Annual Report 2012 73