Bank of Montreal 2000 Annual Report Download - page 72

Notes to Consolidated Financial Statements (Canadian $ in millions, unless otherwise stated)
48 ■Bank of Montreal Group of Companies Annual Report 2000
Note 1 Basis of Presentation
Note 2 Cash Resources
Note 3 Securities
Deposits with Banks
Deposits with banks are recorded at cost and include acceptances which
we have purchased that have been issued by other banks. Interest income
earned on these deposits is recorded on an accrual basis.
Cheques and Other Items in Transit, Net
Cheques and other items in transit are recorded at cost and represent the
net position of the uncleared cheques and other items in transit between
us and other banks.
2000 1999
Cash and non-interest bearing deposits
with Bank of Canada and other banks $ 1,219 $ 1,261
Interest bearing deposits with banks 16,364 21,617
Cheques and other items in transit, net 925 1,158
Total $ 18,508 $ 24,036
Securities are divided into two components, each with a different purpose
and accounting treatment. The two types of securities we hold are as follows:
■
Investment securities are comprised of equity and debt securities that
we purchase with the intention of holding until maturity or until market
conditions, such as a change in interest rates, provide us with a better
investment opportunity. Equity securities are recorded at cost and debt
securities at amortized cost. Our investments in equity securities where
we exert significant influence, but not control, over a corporation, are
recorded at cost and adjusted for our proportionate share of the corpo-
ration’s net income or loss, net of adjustments for the amortization of
goodwill that arose at the time we acquired our interest in the invest-
ment. When we identify a decline in value that is other than temporary,
the affected securities are written down to their fair value. Any write-
downs or gains and losses on the disposal of our investment securities
are recorded in the year they occur and are included in our Consolidated
Statement of Income as either an increase or decrease in other income.
Gains and losses on disposal are calculated using the average cost of
the securities sold. Investment securities of designated countries are
accounted for in accordance with our accounting policy for loans which
is described in note 4.
■
Trading securities are securities that we purchase for resale over a
short period of time. We report these securities at their market value
and record the mark-to-market adjustments and any gains and losses
on the sale of these securities in our Consolidated Statement of Income
in other income.
We did not own any securities issued by a single non-government
entity where the book value, as at October 31, 2000 or October 31,
1999, was greater than 10% of our shareholders’ equity.
Cash Restrictions
We have a number of banking subsidiaries whose cash is available
for use in their own business and may not be used by other related
corporations.
In addition, some of our subsidiaries are required to maintain
reserves or minimum balances with central banks in their respec-
tive countries of operation amounting to $462 as at October 31, 2000
and $401 as at October 31, 1999.
We prepare our consolidated financial statements in accordance with
Canadian generally accepted accounting principles including the account-
ing requirements of our regulator, the Superintendent of Financial
Institutions Canada.
In addition, our consolidated financial statements comply with the
disclosure requirements of United States generally accepted accounting
principles. The more significant differences in consolidated total assets,
total liabilities or net income arising from applying United States gener-
ally accepted accounting principles are described in note 23.
Basis of Consolidation
We conduct business through a variety of corporate structures, including
subsidiaries and joint ventures. 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. All of the assets, liabilities, revenues and expenses
of our subsidiaries and our proportionate share of the assets, liabilities,
revenues and expenses of our joint ventures are included in our consoli-
dated financial statements.
All significant intercompany transactions and balances are eliminated.
Trust assets under administration are maintained separately from our
assets and are not included in our Consolidated Balance Sheet.
Translation of Foreign Currencies
We conduct business in a variety of foreign currencies and report our
consolidated financial statements in Canadian dollars. Assets and liabilities
related to foreign currency transactions are translated into Canadian
dollars at the exchange rate in effect at the balance sheet date. The
income and expense amounts related to these transactions are translated
using the average exchange rate for the year. The realized and unrealized
gains and losses arising from these translations are included in other
income in our Consolidated Statement of Income.
We have various investments in foreign operations which are denom-
inated in foreign currencies. Unrealized gains and losses arising from
translating investments into Canadian dollars are included in shareholders’
equity in our Consolidated Balance Sheet. All realized translation gains
and losses related to our foreign operations are recognized in other income.
From time to time, we enter into foreign exchange hedge contracts
to reduce our exposure to changes in the value of foreign currencies.
The gain or loss on the translation of the hedge contract is offset against
the realized or unrealized gain or loss on the translation of the item being
hedged and is included in other income or retained earnings.
Use of Estimates
In preparing our consolidated financial statements we must make esti-
mates and assumptions, mainly concerning values, which affect reported
amounts of assets, liabilities, net income and related disclosures. Actual
results could differ from these estimates.
Specific Accounting Policies
To facilitate a better understanding of our consolidated financial statements
we have disclosed our significant accounting policies throughout the fol-
lowing notes with the related financial disclosures by major caption.
Changes in Accounting Policies
New accounting policies issued by standard setters are described in notes
16, 17 and 23.