Bank of Montreal 2003 Annual Report Download - page 78

BMO Financial Group 186th Annual Report 200374
We prepare our consolidated financial statements in accordance
with Canadian generally accepted accounting principles (“GAAP”),
including interpretations of GAAP by our regulator, the Super in-
tendent of Financial Institutions Canada.
We reconcile our Canadian GAAP results to those that would result
under United States GAAP. Significant differences in consolidated
total assets, total liabilities or net income arising from applying
United States GAAP are described in Note 27. In addition, our con-
solidated financial statements comply with disclosure requirements
of United States GAAP, except for United States GAAP disclosures
provided in our Management’s Discussion and Analysis and dis-
closures related to Canadian and United States GAAP differences
disclosed in Note 27.
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 consolidated
financial statements. All significant inter-company transactions
and balances are eliminated.
We hold investments in companies where we exert significant
influence over operating and financing decisions (those where we
own between 20% and 50% of the voting shares). These are recorded
at cost and are adjusted for our proportionate share of any income
or loss and dividends. They are recorded as investment securities
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, from securities, in our Consolidated State-
ment of Income.
We hold interests in variable interest entities that are not included
in our consolidated financial statements; these are more fully
described in Note 8.
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 denominated in foreign currencies are translated into
Canadian dollars at the exchange rate in effect at the balance sheet
date. Revenues and expenses denominated in foreign currencies
are translated using the average exchange rate for the year.
(Canadian $ in millions) 2003 2002
Cash and non-interest bearing deposits
with Bank of Canada and other banks $ 1,693 $ 1,257
Interest bearing deposits with banks 17,345 15,604
Cheques and other items in transit, net 822 2,444
Total $ 19,860 $ 19,305
Deposits with Banks
Deposits with banks are recorded at cost and include acceptances
issued by other banks which we have purchased. 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.
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 foreign operations are required to main-
tain reserves or minimum balances with central banks in their
respective countries of operation, amounting to $377 million as at
October 31, 2003 and $257 million as at October 31, 2002.
Note 1 Basis of Presentation
Notes to Consolidated Financial Statements
Unrealized gains and losses arising from translating net invest-
ments in foreign operations into Canadian dollars, net of related
hedging activities and applicable income taxes, are included in
retained earnings in our Consolidated Balance Sheet. When we sell
or liquidate an investment in a foreign operation, the associated
translation gains and losses, previously included in retained earn-
ings, are recorded in non-interest revenue as part of the gain or loss
on disposal of the investment. 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.
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 on the translation of foreign
exchange hedge contracts are included in non-interest revenue
unless they relate to a net investment in foreign operations, in which
case they are included in retained earnings.
Use of Estimates
In preparing our consolidated financial statements we must make
estimates and assumptions, mainly concerning values, which affect
reported amounts of assets, liabilities, net income and related
disclosures. The most significant assets and liabilities where
we must make estimates include measurement of the allowance
for credit losses, trading instruments when no prices or quotes
are available, tax assets and liabilities, pension and other future
employee benefits obligations, goodwill and other intangible assets,
retained interests in securitization vehicles and other than tempo-
rary impairment of investment securities. If actual results differ
from the estimates, the impact would be recorded in future periods.
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.
Changes in Accounting Policies
New accounting policies issued by standard setters adopted in
the two previous years and current year and those that will be-
come effective in future years are described in Notes 4, 8, 9, 12, 18,
19 and 27.
Note 2 Cash Resources