Bank of Montreal 2008 Annual Report Download - page 75

MD&A
BMO Financial Group 191st Annual Report 2008 | 71
Transfer of Financial Assets
On August 1, 2008, we adopted the CICA’s new accounting guidance
permitting the transfer of certain financial assets out of trading
portfolios into available-for-sale. For details of the specific accounting
change and related impacts, refer to Note 3 on page 109 of the
financial statements.
Financial Disclosures
New disclosures that resulted from changes by Canadian standard
setters in the current year are disclosed as follows: financial instruments
disclosures – Notes 3, 4, 15, 29 and 30; capital management – Note 22;
and risk management – Note 6.
Changes in Accounting Policies in 2008
Goodwill and Intangibles
Effective November 1, 2008, BMO adopted the CICA’s new handbook
section “Goodwill and Intangible Assets” with effect for the 2009 fiscal
year. This section clarifies the recognition and measurement criteria
for intangible assets and, in particular, for intangible assets that are
generated internally. The impact of implementation of this standard
will not be material to our results of operations or financial position.
Transition to International Financial Reporting Standards
Canadian public companies will be required to prepare their financial
statements in accordance with International Financial Reporting
Standards (IFRS), as issued by the International Accounting Standards
Board, for financial years beginning on or after January 1, 2011.
Effective November 1, 2011, we will adopt IFRS as the basis for
preparing our consolidated financial statements. We will issue our
financial results for the quarter ended January 31, 2012 prepared on
an IFRS basis. We will also provide comparative data on an IFRS basis,
including an opening balance sheet as at November 1, 2010.
In order to meet the requirement to transition to IFRS, we have
established an enterprise-wide project and formed an executive steer-
ing committee. We are following a transition plan comprised of three
phases: IFRS diagnostic assessment, implementation and education,
and completion of all integration system and process changes. We are
on track, having completed the diagnostic phase of our project, and
we have entered the early stages of the implementation and education
phase of our plan. Due to anticipated changes in International
Accounting Standards prior to our transition to IFRS, we are not in
a position to determine the impact on our financial results.
Future Changes in Accounting Policies
Customer Loyalty Program
During the year ended October 31, 2008, we settled the liability
associated with our credit card customer loyalty rewards program.
We are no longer required to estimate and accrue a liability associated
with the future redemption of rewards issued to our customers
under the new agreement. The ongoing costs of our credit card loyalty
program are recorded as a reduction in non-interest revenue, card
fees in our Consolidated Statement of Income.
Additional information regarding our accounting for our
customer loyalty program is included in Note 16 on page 131 of
the financial statements.
Income Taxes
The provision for income taxes is calculated based on the expected tax
treatment of transactions recorded in our Consolidated Statements of
Income or Changes in Shareholders’ Equity. In determining the provision
for income taxes, we interpret tax legislation in a variety of jurisdictions
and make assumptions about the expected timing of the reversal of
future tax assets and liabilities. If our interpretations differ from those of
tax authorities or if the timing of reversals is not as anticipated, our provi-
sion for income taxes could increase or decrease in future periods. The
amount of any such increase or decrease cannot be reasonably estimated.
Additional information regarding our accounting for income taxes
is included in Note 25 on page 142 of the financial statements.
Goodwill and Intangible Assets
Goodwill is assessed for impairment at least annually. This assessment
includes a comparison of the carrying value and the fair value of each
group of businesses to ensure that the fair value of the group is greater
than its carrying value. If the carrying value exceeds the fair value of
the group, a more detailed goodwill impairment assessment would
have to be undertaken. In determining fair value, we employ internally
generated valuation models consistent with those used when we
are acquiring businesses. Valuation models used to determine fair value
include discounted cash flows, comparable acquisitions and industry
multiples. These models are dependent on assumptions related to
revenue growth, discount rates, synergies achieved on acquisitions,
and the availability of comparable acquisition data. Changes in each
of these assumptions will impact the determination of fair value for
each of the business units in a different manner. Management must
exercise judgment and make assumptions in determining fair value,
and differences in judgments and assumptions could affect the
determination of fair value and any resulting impairment write-down.
At October 31, 2008, the estimated fair value of each of our groups
of businesses was greater than its carrying value.
Intangible assets are amortized to income on either a straight-line
or an accelerated basis over a period not exceeding 15 years, depending
upon the nature of the asset. There are no intangible assets with
indefinite lives. We test intangible assets for impairment when circum-
stances indicate the carrying value may not be recoverable. No such
impairment has been identified for the years ended October 31, 2008,
2007 and 2006.
Additional information regarding the composition of goodwill
and intangible assets is included in Note 13 on page 129 of the financial
statements.
Contingent Liabilities
BMO and its subsidiaries are involved in various legal actions in the
ordinary course of business.
Contingent litigation loss provisions are recorded when it becomes
likely that BMO will incur a loss and the amount can be reasonably esti-
mated. BMO’s management and internal and external experts are
involved in assessing any likelihood and in estimating any amounts
involved. The actual costs of resolving these claims may be substantially
higher or lower than the amounts provided. Additional information
regarding contingent liabilities is included in Note 29 on page 146 of the
financial statements.