Bank of Montreal 2008 Annual Report Download - page 155

(i) Liabilities and Equity
Under United States GAAP, certain of our preferred shares and capital
trust securities that are ultimately convertible into a variable number
of our common shares at the holder’s option are classified as equity and
non-controlling interest, with payments recognized as dividends and
minority interest, respectively. Under Canadian GAAP, preferred shares
and capital trust securities with this conversion feature are classified
as liabilities, with payments recognized as interest expense.
(j) 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.
(k) Available-for-Sale Securities
Under both Canadian and 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 influence but not control. Available-for-sale securities
are carried at fair value, with any unrealized gains or losses recorded
in other comprehensive income unless impaired. Other than temporary
impairment and realized gains and losses are 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.
(l) Accounting for Securities Transactions
Under United States GAAP, securities transactions are recognized in
our Consolidated Balance Sheet when we enter into the transaction.
Under Canadian GAAP, securities transactions are recognized in our
Consolidated Balance Sheet when the transaction is settled.
(m) 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.
(n) Reclassification from Trading Securities to Available-for-Sale Securities
During the year ended October 31, 2008, we adopted new Canadian
accounting guidance which allows, in rare circumstances, certain
reclassifications of non-derivative financial assets from the trading
category to either the available-for-sale or held-to-maturity categories.
This new guidance is consistent with United States GAAP, except that
United States GAAP requires that the reclassification be recorded
on the date the transfer is completed. We elected to transfer securities
from trading to available-for-sale for which we had a change in
intent caused by current market circumstances to hold the securities
for the foreseeable future rather than to exit or trade them in the
short term. The Canadian accounting guidance was applicable on a
retroactive basis to August 1, 2008 for us and the transfers took place
at the fair value of the securities on August 1, 2008. We reclassified
these securities under United States GAAP effective October 31, 2008.
This difference will reverse as these securities are sold.
Changes in Accounting Policy
Accounting for Uncertainty in Income Taxes
Effective November 1, 2007, we adopted the new guidance issued by
the Financial Accounting Standards Board (“FASB”) 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. The new standard did not have any impact
on our consolidated financial statements as our current policy on
accounting for income tax was consistent with this guidance.
Fair Value Measurement
Effective November 1, 2007, we adopted the new FASB accounting
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 measure-
ments, and to enhance disclosures to help users of financial statements
assess the effects of the fair value measurements used in financial
reporting. The framework provides a hierarchy for reliably determining
fair value based on the definition in the standard. The new standard
did not have any impact on our consolidated financial statements
as our current policy on fair value measurement was consistent with
this guidance.
Future Changes in Accounting Policy
Offsetting of Amounts Related to Certain Contracts
The FASB has issued guidance which discusses the appropriateness
of offsetting certain amounts in multiple contracts with a single counter-
party. This standard is effective November 1, 2008. Our current policy
on offsetting is consistent with this guidance.
Convertible Debt Instruments
The FASB has issued guidance on the accounting for convertible
debt instruments that may be settled in cash (or other assets) upon
conversion, including partial cash settlement. Instruments classified
as debt are within the scope of this new standard, which requires
theliabilityandequitycomponentstobeaccountedforseparately.
This accounting treatment differs from current accounting requirements,
which generally treat convertible debt securities that may be cash-
settled solely as debt. This standard is effective November 1, 2008.
This standard will not impact the Bank as all of our convertible preferred
shares and capital trust securities are classified as equity under United
States GAAP.
Non-controlling Interests in Consolidated Financial Statements
The FASB has issued a new standard which clarifies that a non-controlling
interest in a subsidiary should be reported as equity in the consoli-
dated financial statements. In addition, the amount of consolidated
net income attributed to the parent and to the non-controlling interest
should be clearly presented on the consolidated statement of income.
Currently, we report non-controlling interests in Other Liabilities on our
Consolidated Balance Sheet. This standard is effective November 1, 2009.
The CICA is expected to release a new standard that will eliminate the
presentation difference between Canadian and United States GAAP. This
standard is expected to be effective for the Bank on November 1, 2011
with earlier adoption permitted.
Business Combinations
The FASB has issued a new standard on business combinations.
The new standard retains the purchase method of accounting for all
business combinations. The new standard requires the acquirer to
recognize the assets acquired, liabilities assumed and any non-controlling
interest in the acquiree at their fair values as of the acquisition date.
Under Canadian GAAP, the assets acquired and liabilities assumed are
adjusted only for the acquirer’s share of the fair value. Non-controlling
interests are recorded at their share of the carrying values recorded
in the accounting records of the acquiree. This standard is effective
for business combinations with an acquisition date on or after Novem-
ber 1, 2009. The CICA is expected to release a new standard that
will eliminate any differences between Canadian and United States
GAAP. This standard is expected to be effective for the Bank on
November 1, 2011, with earlier adoption permitted.
Notes
BMO Financial Group 191st Annual Report 2008 | 151