Bank of Montreal 2007 Annual Report Download - page 141

(h) Income Taxes
In addition to the tax impact of differences outlined above, under
United States GAAP, tax rate changes do not impact the measurement
of our future income tax balances until they are passed into law.
Under Canadian GAAP, tax rate changes are recorded in income in
the period the tax rate change is substantively enacted.
(i) Non-Cash Collateral
Under United States GAAP, non-cash collateral received in security
lending transactions that we are permitted by contract to sell or
re-pledge is recorded as an asset in our Consolidated Balance Sheet
and a corresponding liability is recorded for the obligation to return
the collateral. Under Canadian GAAP, such collateral and the related
obligation are not recorded in our Consolidated Balance Sheet. As a
result of this difference, available-for-sale securities and other liabilities
have been increased by $2,225 million and $1,545 million for the
years ended October 31, 2007 and 2006, respectively.
(j) Liabilities and Equity
Under United States GAAP, certain of our preferred shares and capital
trust securities are classified as equity and non-controlling interest, with
payments recognized as dividends and minority interest, respectively.
Under Canadian GAAP, as both instruments are ultimately convertible into
a variable number of our common shares at the holders’ option, they
are classified as liabilities, with payments recognized as interest expense.
(k) Merchant Banking Investments
Under United States GAAP, our merchant banking subsidiaries account
for their investments at cost or under the equity method. Under
Canadian GAAP, these subsidiaries account for their investments at fair
value, with changes in fair value recorded in income as they occur.
(l) Shareholders’ Equity
Accumulated other comprehensive income is recorded as a separate
component of shareholders’ equity under United States GAAP. Prior
to November 1, 2006, Canadian GAAP did not permit presentation of
other comprehensive income. Effective November 1, 2006, Canadian
GAAP changed to eliminate this difference.
(m) Available-for-Sale Securities
Under United States GAAP, we have designated as available-for-sale
all of our securities other than trading securities, loan substitute
securities and investments in corporate equity where we exert significant
i nfluence but not control. Available-for-sale securities are carried at
fair value, with any unrealized gains or losses recorded in other compre-
hensive income unless impaired. Other than temporary impairment
is recorded in income. Prior to November 1, 2006, under Canadian GAAP,
investment securities were carried at cost or amortized cost. Canadian
GAAP changed on November 1, 2006 to eliminate this difference.
(n) Accounting for Securities Transactions
Under United States GAAP, securities transactions are recognized in
our Consolidated Balance Sheet when the transaction is entered into.
Under Canadian GAAP, securities transactions are recognized in our
Consolidated Balance Sheet when the transaction is settled.
(o) Bankers’ Acceptances
Under United States GAAP, bankers’ acceptances purchased from other
banks are classified as loans. Under Canadian GAAP, bankers’ acceptances
purchased from other banks are recorded as cash resources (deposits
with banks) in our Consolidated Balance Sheet.
Changes in Accounting Policy
Hybrid Financial Instruments
Effective November 1, 2006, we adopted the new United States
accounting standard on hybrid financial instruments. The new rules
allow us to elect to measure certain hybrid financial instruments at fair
value in their entirety, with any changes in fair value recognized in
earnings. Under the previous rules, only the embedded derivative in
the hybrid financial instrument was recorded at fair value. We did
not elect to measure any hybrid financial instruments at fair value.
The new standard did not have any impact on our consolidated
financial statements.
Future Changes in Accounting Policy
Accounting for Uncertainty in Income Taxes
The FASB issued guidance on the accounting for uncertainty in income
taxes recognized in an entity’s financial statements. This interpretation
clarifies that an entity’s tax benefits recognized in tax returns must
be more likely than not of being sustained on audit prior to recording
the related tax benefit in the financial statements. This standard
is effective November 1, 2007. The impact of this standard will not
be significant.
Fair Value Measurement
The FASB has issued a new standard which clarifies the definition of
“fair value” applicable under all United States accounting standards, with
some limited exceptions. The standard establishes a single definition
of fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. The objective
of the standard is to increase consistency, reliability and comparability
in fair value measurements, and to enhance disclosures to help users
of financial statements assess the effects of the fair value measure-
ments used in financial reporting. The framework provides a hierarchy
for reliably determining fair value based on the definition in the
standard. This standard is effective November 1, 2008. Our current
policy on accounting for fair value measurement is consistent with
this guidance.
BMO Financial Group 190th Annual Report 2007 137
Notes