Bank of Montreal 2010 Annual Report Download - page 168

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes
166 BMO Financial Group 193rd Annual Report 2010
Reconciliation of Comprehensive Income
For the Year Ended October 31 (Canadian $ in millions) 2010 2009 2008
Total Comprehensive Income, as reported under Canadian GAAP 2,651 1,639 3,260
Adjustments to arrive at United States GAAP:
Net income adjustments, as per Reconciliation of Income 155 120 (110)
Unrealized gain (loss) on reclassification from trading securities to available-for-sale securities (c) (1) (64) (61) 123
Unrealized (gain) loss on derivatives that do not qualify as cash flow hedges under United States GAAP (h) (2) (147) (2) –
Adjustment to unrealized gain (loss) on translation of net foreign operations, net of hedging activities (i) 2 5 (12)
Unrealized actuarial (loss) on pension and other employee future benefits (j) (3) (200) (176) (254)
Unrealized gain on insurance securities designated as held for trading under Canadian GAAP (d) (4) 153 226 –
Adjustment to other-than-temporary impairment (o) (2) (16) –
Total Comprehensive Income available to common shareholders based on United States GAAP (5) 2,548 1,735 3,007
(a) 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 interest bearing deposits
with banks in our Consolidated Balance Sheet.
(b) 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.
(c) 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 reclas-
sifications 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 from trading to
available-for-sale those securities for which we had a change in intent
caused by market circumstances at that time 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 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 at their fair value
at that date. This difference will reverse as these securities are sold.
(d) Insurance Accounting
Under United States GAAP, fixed income and equity investments
supporting the policy benefit liabilities of life and health insurance
contracts are classified as available-for-sale securities. Under Canadian
GAAP, fixed income and equity investments supporting the policy
benefit liabilities of life and health insurance contracts are designated
as held-for-trading securities using the fair value option.
Under United States GAAP, liabilities for life insurance contracts,
except universal life and other investment-type contracts, are determined
using the net level premium method. For universal life and other
investment-type contracts, liabilities represent policyholder account
balances and include a reserve calculated using the net level premium
method for some contracts. Under Canadian GAAP, liabilities for life insur-
ance contracts are determined using the Canadian asset liability method.
Under United States GAAP, premiums received for universal life and
other investment-type contracts are recorded as a liability. Under Canadian
GAAP, these premiums are recorded in income and a liability for future
policy benefits is established that is an offsetting charge to income.
Under both United States and Canadian GAAP, premiums from
long-duration contracts are recognized in income when due and premiums,
net of reinsurance, for short-duration contracts are recorded in income
over the related contract period.
Under United States GAAP, reinsurance recoverables, deferred
acquisition costs for life insurance and annuity contracts and the value of
in-force life insurance business acquired (“VOBA”) are recorded as assets.
Deferred acquisition costs and VOBA are then amortized. Under Canadian
GAAP, these items are included in the insurance-related liability balance.
(e) Non-Cash Collateral
Under United States GAAP, non-cash collateral received in securities
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 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 $3,294 million and $197 million as
at October 31, 2010 and 2009, respectively.
(f) 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.
(g) Offsetting of Amounts Related to Certain Contracts
Under United States GAAP, our right to reclaim cash collateral or the
obligation to return cash collateral arising from derivative instruments
are netted against the derivative instruments if they are executed
(1) Net of income taxes of $28 million in 2010, $30 million in 2009 and $60 million in 2008.
(2) Net of income taxes of $64 million in 2010 and $1 million in 2009.
(3) Net of income taxes of $71 million in 2010, $68 million in 2009 and $102 million in 2008.
(4) Net of income taxes of $68 million in 2010 and $104 million in 2009.
(5) Total comprehensive income is $2,693 million in 2010 ($1,890 million in 2009 and $3,160 million
in 2008) including non-controlling interest of $145 million in 2010 ($155 million in 2009 and
$153 million in 2008).
Reconciliation of Accumulated Other Comprehensive Loss
For the Year Ended October 31 (Canadian $ in millions) 2010 2009
Total Accumulated Other Comprehensive Loss, as reported under Canadian GAAP (558) (399)
Adjustments to arrive at United States GAAP:
Unrealized gain (loss) on reclassification from trading securities to available-for-sale securities (c) (2) 62
Fair value adjusted for derivatives that do not qualify as cash flow hedges under United States GAAP (h) (149) (2)
Adjustment to unrealized gain on translation of net foreign operations, net of hedging activities (i) 36 34
Unrealized actuarial (loss) on pension and other employee future benefits (j) (1,148) (948)
Unrealized gain on insurance securities classified as held for trading under Canadian GAAP (d) 379 226
Adjustment to other-than-temporary impairment (o) (18) (16)
Total Accumulated Other Comprehensive Loss based on United States GAAP (1,460) (1,043)