Bank of Montreal 2008 Annual Report Download - page 154

(a) Fair Value Option
Effective November 1, 2006, we adopted a new Canadian accounting
standard which allows us to elect to measure financial instruments
that would not otherwise be accounted for at fair value as trading
instruments, with changes in fair value recorded in income provided they
meet certain criteria. Financial instruments must have been designated
on November 1, 2006, when the standard was adopted, or when new
financial instruments were acquired, and the designation is irrevocable.
Effective November 1, 2007, we adopted the new United States
accounting standard which allows us to elect to report selected financial
assets and liabilities at fair value. The new standard eliminated a
difference between Canadian and United States GAAP.
(b) Pension and Other Employee Future Benefits
Effective October 31, 2007, United States GAAP requires us to recognize
the excess of the fair value of our plan assets compared to the
corresponding benefit obligation as an asset and the shortfall of the
fair value of our plan assets compared to the corresponding benefit
obligation as a liability. This is done on a plan-by-plan basis. The offset-
ting adjustment is recorded in Accumulated Other Comprehensive
Income. This new guidance replaces the United States GAAP requirement
to recognize an additional minimum pension liability in cases where
the obligation, calculated without taking salary increases into account,
exceeds the fair value of plan assets at year end. There is no change
in the calculation of the pension and other employee future benefits
expense. Under Canadian GAAP, there is no similar requirement.
Under both Canadian and United States GAAP, both pension and
other employee future benefits are recorded in our Consolidated State-
ment of Income in the period services are provided by our employees.
The corresponding obligations are valued using current market rates.
Under Canadian GAAP, prior to November 1, 2000, pension benefits were
recorded in our Consolidated Statement of Income in the period services
were provided by our employees, with the corresponding obligation
valued using management’s best estimate of the long-term rate of return
on plan assets, while other employee future benefits were expensed
as incurred. Effective November 1, 2000, we adopted a new Canadian
accounting standard on pension and other employee future benefits that
eliminated the difference between Canadian and United States GAAP.
When we adopted this new standard, we accounted for the change in
accounting as a charge to retained earnings. As a result, there will
continue to be an adjustment to our Consolidated Statement of Income
until amounts previously deferred under United States GAAP have
been fully amortized to income.
(c) Derivatives
Under both Canadian and United States GAAP, hedging derivatives are
recorded at fair value in our Consolidated Balance Sheet. Changes in the
fair value of hedging derivatives are either offset in our Consolidated
Statement of Income against the change in the fair value of the hedged
asset, liability or firm commitment, or are recorded in Accumulated
Other Comprehensive Income until the hedged item is recorded in our
Consolidated Statement of Income. If the change in the fair value of
the derivative is not completely offset by the change in the fair value
of the item it is hedging, the difference is recorded immediately in
our Consolidated Statement of Income.
Prior to November 1, 2006, hedging derivatives were accounted
for on an accrual basis, with gains or losses deferred and recorded
in income on the same basis as the underlying hedged item under
Canadian GAAP. Canadian GAAP changed on November 1, 2006 to
eliminate this difference.
(d) Stock-based Compensation
Effective November 1, 2005, under United States GAAP, stock-based com-
pensation granted to employees who are eligible to retire was expensed
at the time of grant. We adopted this new standard prospectively,
beginning with grants issued in fiscal 2006. We retroactively adopted
new Canadian accounting guidance on stock-based compensation during
the year ended October 31, 2006, which conformed with the United
States accounting standard. Due to the differences in the methods
of adoption, there will continue to be an adjustment to our Consolidated
Statement of Income until the stock-based compensation granted prior
to November 1, 2005 has been fully amortized.
(e) Software Development Costs
Under United States GAAP, costs of internally developed software
are required to be capitalized and amortized over the expected useful
life of the software. Under Canadian GAAP, prior to November 1, 2003,
only costs paid to third parties related to internally developed software
were capitalized and amortized over the expected useful life of the
software. Effective November 1, 2003, we adopted a new Canadian
accounting standard that eliminated this difference for software develop-
ment costs incurred after October 31, 2003. There will continue to be
an adjustment to our Consolidated Statement of Income until software
development costs capitalized prior to fiscal 2004 are fully amortized.
(f) Goodwill and Other Assets
Under United States GAAP, our acquisition of Suburban Bancorp, Inc.
in 1994 would have been accounted for using the pooling of interests
method. Under Canadian GAAP, we accounted for this acquisition
using the purchase method, which resulted in the recognition and
amortization of goodwill and other intangible assets associated with
the acquisition. Effective November 1, 2001, goodwill is no longer
amortized to income under either United States or Canadian GAAP.
The remaining difference relates to the amortization of intangible
assets under Canadian GAAP.
(g) 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.
(h) Non-Cash Collateral
Under United States GAAP, non-cash collateral received in security
lending transactions that we are permitted by contract to sell or
repledge is recorded as an asset in our Consolidated Balance Sheet and
a corresponding liability is recorded for the obligation to return the col-
lateral. 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 $931 million and $2,225 million for the years
ended October 31, 2008 and 2007, respectively.
Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
150 | BMO Financial Group 191st Annual Report 2008
Consolidated Statement of Accumulated Other Comprehensive Loss
For the Year Ended October 31 (Canadian $ in millions) 2008 2007
Total Accumulated Other Comprehensive Loss, as reported under Canadian GAAP $ (251) $ (1,533)
Adjustments to arrive at United States GAAP:
Unrealized gain on translation of net foreign operations, net of hedging activities (f) 29 41
Unrealizedgainonreclassificationfromtradingsecuritiestoavailable-for-salesecurities(n) 123 –
Pension and other employee future benefits (b) (772) (518)
Total Accumulated Other Comprehensive Loss based on United States GAAP $ (871) $ (2,010)