Bank of Montreal 2014 Annual Report Download - page 63

MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
requirements of the Securities and Exchange Commission (SEC) in the
United States, as applicable. Management is responsible for establishing
and maintaining adequate internal control over financial reporting for
Bank of Montreal.
Bank of Montreal’s internal control over financial reporting
includes policies and procedures designed to provide assurance that
records are maintained in reasonable detail to accurately and fairly
reflect the transactions and dispositions of the assets of Bank of Mon-
treal; and to provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the financial statements
in accordance with IFRS and the requirements of the SEC in the United
States, as applicable, receipts and expenditures of Bank of Montreal are
being made only in accordance with authorizations by management and
directors of Bank of Montreal, and unauthorized acquisition, use or
disposition of Bank of Montreal’s assets that could have a material
effect on the financial statements are prevented or detected in a timely
manner.
Because of its inherent limitations, internal control over financial
reporting can provide only reasonable assurance and may not prevent
or detect misstatements. Furthermore, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Bank of Montreal’s management, under the supervision of the CEO
and the CFO, has evaluated the effectiveness of internal control
over financial reporting using the framework and criteria established in
Internal Control – Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission in May 2013
(2013 COSO Framework). Based on this evaluation, management has
concluded that internal control over financial reporting was effective as
of October 31, 2014.
At the request of Bank of Montreal’s Audit and Conduct Review
Committee, KPMG LLP (Shareholders’ Auditors), an independent regis-
tered public accounting firm, has conducted an audit of the effectiveness
of our internal control over financial reporting based on the 2013 COSO
Framework. The audit report concludes that, in KPMG’s opinion, Bank of
Montreal maintained, in all material respects, effective internal control
over financial reporting as of October 31, 2014, in accordance with the
criteria established in the 2013 COSO Framework. This audit report
appears on page 121.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting in
fiscal 2014 that have materially affected, or are reasonably likely to
materially affect, the adequacy and effectiveness of our internal control
over financial reporting.
Shareholders’ Auditors’ Services and Fees
Review of Shareholders’ Auditors
The Audit and Conduct Review Committee (ACRC) is responsible for the
appointment, compensation and oversight of the shareholders’ auditors
and conducts an annual assessment of the shareholders’ auditors’ per-
formance and effectiveness considering factors such as the: (i) quality of
services provided by the shareholders’ auditors’ engagement team
during the audit period, (ii) relevant qualifications, experience and
geographical reach to serve BMO, (iii) quality of communications
received from the shareholders’ auditors, and (iv) the shareholders’
auditors’ independence, objectivity and professional skepticism.
The Board believes that it has a robust review processes in place to
monitor audit quality and oversee the work of the shareholders’ auditors
including the lead partner, including:
‰annually reviewing the shareholders’ auditors’ audit plan, including
considering the impact of business risks on the audit plan and
assessing the reasonableness of the audit fee;
‰monitoring the execution of the audit plan, with emphasis on the
more complex and risky areas of the audit;
‰reviewing and evaluating the audit findings including in camera
sessions;
‰evaluating audit quality and performance, including recent Canadian
Public Accountability Board and Public Company Accounting Oversight
Board inspection reports on the shareholders’ auditors and its
peer firms;
‰reviewing qualifications of senior engagement team members with
the shareholders’ auditors;
‰soliciting the opinion of management and the bank’s internal auditors
on the performance of the engagement team; and
‰at a minimum, holding quarterly meetings between the ACRC Chair
and the lead audit partner to discuss audit issues independently of
management.
Independence of the shareholders’ auditors is overseen by the ACRC in
accordance with the bank’s Auditor Independence Policy as outlined
below. The ACRC also ensures that the lead audit partner rotates out of
that role after 5 consecutive years and does not return to that role for a
further 5 years.
Pre-Approval Policies and Procedures
As part of BMO Financial Group’s corporate governance practices, the
ACRC oversees the application of BMO’s corporate policy limiting the
services provided by the shareholders’ auditors that are not related to
their role as auditors. The ACRC pre-approves the types of services
(“permitted services”) that can be provided by the shareholders’ audi-
tors as well as the annual audit plan, which includes fees for specific
types of services. For permitted services that are not included in the pre-
approved annual audit plan, confirmation to proceed with the engage-
ment is obtained and the services are presented to the ACRC for
ratification at its next meeting. All services comply with our Auditor
Independence Policy, as well as professional standards and securities
regulations governing auditor independence.
Shareholders’ Auditors’ Fees
Aggregate fees paid to the Shareholders’ Auditors during the fiscal years
ended October 31, 2014 and 2013 were as follows:
Fees ($ millions) (1) 2014 2013
Audit fees 17.3 14.9
Audit-related fees (2) 1.9 1.5
Tax fees ––
All other fees (3) 1.2 1.0
Total 20.4 17.4
(1) The classification of fees is based on applicable Canadian securities laws and U.S. Securities
and Exchange Commission definitions.
(2) Audit-related fees for 2014 and 2013 relate to fees paid for accounting advice, specified
procedures on our Proxy Circular and other specified procedures.
(3) All other fees for 2014 and 2013 relate primarily to fees paid for reviews of compliance with
regulatory requirements for financial information and reports on internal controls over
services provided by various BMO Financial Group businesses. They also include costs of
translation services.
74 BMO Financial Group 197th Annual Report 2014