Bank of Montreal 2010 Annual Report Download - page 73

MD&A
Changes in Accounting Policies in 2010
There were no changes in accounting policies in 2010.
Future Changes in Accounting Policies – IFRS
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 (IASB), for fiscal 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 report our financial results
for the quarter ending 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 (transition date).
IFRS Transition Plan and Current Status
In order to meet the requirement to transition to IFRS, we established
an enterprise-wide project and formed an Executive Steering Committee.
The transition plan is comprised of three phases: a diagnostic review
and assessment to identify potential differences between IFRS and the
bank’s current accounting policies; implementation and education, which
includes confirming actual differences between IFRS and the bank’s
current accounting policies; and completion of all integration require-
ments for actual differences identified.
Phase I – Diagnostic Review and Assessment
The primary objective of Phase I was to complete a comprehensive
review of the IFRS requirements relative to the bank’s current accounting
policies in order to identify potential differences. This analysis identified
the scope of the work required, allowing for the completion of a detailed
implementation plan including timelines and resource requirements.
CURRENT STATUS
A detailed implementation plan was developed and approved by the IFRS
Executive Steering Committee in 2009. Potential differences between IFRS
and the bank’s current accounting policies have been fully documented.
Phase II – Implementation and Education
The key elements of Phase II include: confirming actual differences
between IFRS and the bank’s current accounting policies and selecting
policy options permitted under IFRS; identifying and implementing the
necessary changes within our existing financial reporting and data collection
processes and technology; assessing the impact on internal controls
over financial reporting and disclosure; designing and implementing
a technology-based solution to track and record IFRS-based financial
information for the 2011 reporting year for comparative purposes; and
developing and executing internal training and awareness programs to
ensure sufficient financial reporting expertise and governance. Substantial
completion of Phase II activities is expected in the first quarter of 2011.
CURRENT STATUS
Confirmation of Actual Differences and Implementation Requirements
The implementation activities have been organized by individual work
streams (25 in total). We have substantially completed ten work
streams: capital assets, leases, stock-based compensation, intangible
assets, revenue recognition, foreign currency translation, earnings per
share, borrowing costs, investment properties and business combina-
tions. Based on our analysis to date, these work streams have not
revealed any material differences relative to current BMO accounting
practices. The remaining 15 work streams are all well advanced. Progress
on the work streams related to the main accounting changes is outlined
in the following section.
The transition plan contemplates substantial completion of all work
streams by the first quarter of 2011; however, we continue to closely
monitor the work of the IASB on any changes to existing IFRS and adjust
our project plan to reflect these developments.
Quantification of Key Impacts
The differences between the bank’s accounting policies and IFRS require-
ments, combined with our decisions on the optional IFRS 1 exemptions
from retroactive application of IFRS, will result in measurement and
recognition differences when we transition to IFRS. The net impact
of these differences will be recorded in opening retained earnings,
affecting shareholders’ equity. The accounting differences noted in the
following section, Identification of Differences between the Bank’s
Current Accounting Policies and the Requirements under IFRS, should not
be considered a comprehensive list of the impacts of adopting IFRS, but
rather the identification of certain key changes based on our analysis
to date. Precisely quantifying all of the impacts that will result from
adopting IFRS will be subject to the completion of all our project work
streams, finalization of all decisions where choices of accounting policies
are available, including optional exemptions from retroactive restate-
ment available under IFRS 1, and the prevailing market conditions and
economic circumstances at the time of transition.
In response to the financial reporting issues emerging from the
global financial crisis, the IASB plans to make revisions to or replace
certain existing IFRS standards. In particular, we expect that there will be
changes in the standards that address securities, hedging, provisions for
credit losses, consolidation, pension and other employee future benefits,
leases and insurance contracts. We do not expect any of these changes
to be in effect until after the bank’s date of transition, with the result
that the impact of adopting IFRS will extend beyond our transitional year.
We continue to monitor and evaluate these potential future changes.
Identification of Differences between the Bank’s Current Accounting
Policies and the Requirements under IFRS
Based on our analysis to date, the main accounting changes that
will result from the adoption of IFRS are expected to be in the areas
of pension and other employee future benefits, asset securitization,
consolidation and accumulated other comprehensive loss on translation
of foreign operations. The IFRS requirements associated with these areas
differ from current BMO accounting policies such that there will likely
be impacts on the bank’s balance sheets and statements of income.
These impacts will also extend to our capital ratios. Other significant
differences may be identified prior to our transition to IFRS. The
differences described in the sections that follow are based on Canadian
GAAP and IFRS that are in effect as of this date.
OSFI has issued an IFRS advisory that permits a five-quarter phase-in
of the adjustment to retained earnings arising from the first-time adoption
of
certain IFRS requirements for purposes of calculating certain ratios.
Transitional relief for the impact on the Assets-to-Capital Multiple will
also be provided in the form of excluding the effect of any on-balance
sheet recognition of mortgages that were sold through Canada Mortgage
and Housing Corporation (CMHC) programs up to March 31, 2010.
Pension and Other Employee Future Benefits
Under the IFRS employee benefits standard (IAS 19), we will continue
to record pension and other employee future benefits expense as
the cost of benefits earned in the year plus the interest cost on the
obligation, net of the expected return on assets. IFRS provides two alter-
natives for how to account for the unrealized market-related gains or
losses on pension fund assets and the impact of changes in discount
rates on pension obligations (market-related amounts). We can either
BMO Financial Group 193rd Annual Report 2010 71