Bank of Montreal 2013 Annual Report Download - page 119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to Consolidated Financial Statements
Notes
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. The bank is a chartered bank under the Bank Act (Canada).
We have prepared these financial statements in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”). We also comply with
interpretations of IFRS by our regulator, the Office of the Superintendent
of Financial Institutions Canada (“OSFI”).
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 3, 2013.
Basis of Consolidation
These consolidated financial statements are inclusive of the financial
statements of our subsidiaries as at October 31, 2013. We conduct
business through a variety of corporate structures, including subsidiaries,
joint ventures, associates and special purpose entities (“SPEs”).
Subsidiaries are those entities where we exercise control through our
ownership of the majority of the voting shares. Joint ventures are those
entities 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, and
consolidated SPEs, and our proportionate share of the assets, liabilities,
revenues and expenses of our joint ventures are included in our
consolidated financial statements. All significant intercompany
transactions and balances are eliminated on consolidation.
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.
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 130 18 Capital Trust Securities 161
2 Cash Resources and Interest
Bearing Deposits with Banks 133 19 20 Interest Rate Risk Equity 161 163
3 Securities 134 21 Capital Management 165
4 Loans, Customers’ Liability under
Acceptances and 22 Employee Compensation – Stock-Based Compensation 165
Allowance for Credit Losses 137 23 Employee Compensation –
5
6 Other Credit Instruments Risk Management 141 142 Pension and Other Employee Future Benefits 167
7 Guarantees 144 24 Income Taxes 171
8 Asset Securitization 145 25 Earnings Per Share 174
9
10 Special Purpose Entities Derivative Instruments 145 147 26 Operating and Geographic Segmentation 174
11 Premises and Equipment 155 27 Related Party Transactions 177
12
13 Acquisitions Goodwill and Intangible Assets 155 156 28 Provisions and Contingent Liabilities 177
14
15 Other Assets Deposits 158 158 29 Fair Value of Financial Instruments 178
16 Other Liabilities 159 30 Contractual Maturities of Assets
17 Subordinated Debt 160 and Liabilities and Off-Balance
Sheet Commitments 185
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 our net
investment 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 gains and losses are included in foreign exchange, other than
trading, in our Consolidated Statement of Income as they arise.
Foreign currency translation gains and losses on available-for-sale
debt securities that are denominated in foreign currencies are included
in foreign exchange, other than trading, in our Consolidated Statement
of Income.
From time to time, we enter into foreign exchange hedge contracts
to reduce our exposure to changes in the value of foreign currencies.
Realized and unrealized gains and losses that arise on the mark-to-
market of foreign exchange contracts related to economic hedges are
included in foreign exchange, other than trading, in our Consolidated
Statement of Income. Changes in fair value on forward contracts that
qualify as accounting hedges are recorded in our Consolidated
Statement of Comprehensive Income, with the spot/forward differential
(the difference between the foreign currency rate at the inception of the
contract and the rate at the end of the contract) being recorded in
interest income (expense) over the term of the hedge.
130 BMO Financial Group 196th Annual Report 2013