We prepare our consolidated financial statements in accordance with Canadian generally accepted accounting principles (GLYPH<210>GAAPGLYPH<210>) including the accounting  requirements of our regulator, the Superintendent of Financial Institutions Canada. In addition, our consolidated financial statements comply with disclosure requirements of United States GAAP, except for United States GAAP disclosures provided in our ManagementGLYPH<213>s Discussion and Analysis and disclosures related  to Canadian and United States GAAP differences disclosed in Note 25. The more significant differences in consolidated total assets, total liabilities or net income arising from applying United States GAAP are described in Note 25. Sheet. When we sell or liquidate an investment in any foreign operation, the  associated translation gains and losses, previously included in retained earnings,  are recorded in non-interest revenue as part of the gain or loss on disposal of the investment. All other foreign currency translation gains and losses are included  in non-interest revenue. From time to time, we enter into foreign exchange hedge contracts to reduce our exposure to changes in the value of foreign currencies. Realized and unreal- ized gains and losses on the translation of foreign exchange hedge contracts are included in non-interest revenue unless they relate to a net investment in foreign operations, in which case they are included in retained earnings.  I n preparing our consolidated financial statements we must make estimates and assumptions, mainly concerning values, which affect reported amounts of assets, liabilities, net income and related disclosures. The most significant assets and  liabilities where we must make estimates include measurement of the allowance  for credit losses, trading instruments when no prices or quotes are available, tax assets and liabilities, pension and other future employee benefits obligations, goodwill and other intangible assets, retained interests in securitization vehicles  and assessing other than temporary impairment of investment securities. If actual r esults differ from the estimates, the impact would be recorded in future periods. Use of Estimates Basis of Consolidation Translation of Foreign Currencies We conduct business through a variety of corporate structures, including subsid- iaries and joint ventures. Subsidiaries are those where we exercise control through our ownership of the majority of the voting shares. Joint ventures are those where we exercise joint control through an agreement with other shareholders. All of the assets, liabilities, revenues and expenses of our subsidiaries and our proportionate share of the assets, liabilities, revenues and expenses of our joint ventures are included in our consolidated financial statements. All significant inter-company transactions and balances are eliminated. Trust assets under administration, mutual fund assets under management and assets held in off-balance sheet special-purpose entities (Note 7) are maintained separately and are not included in our Consolidated Balance Sheet. We conduct business in a variety of foreign currencies and report our consolidated  financial statements in Canadian dollars. Assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses denominated in foreign currencies are translated using the average exchange rate for the year. Unrealized gains and losses arising from translating net investments in foreign operations into Canadian dollars, net of applicable income taxes and related  hedging activities, are included in retained earnings in our Consolidated Balance New accounting policies issued by standard setters adopted in the current year and those that will become effective next year are described in Notes 3, 7, 9,  1 6, 23 and 25. To facilitate a better understanding of our consolidated financial statements we have disclosed our significant accounting policies in blue throughout the following notes with the related financial disclosures by major caption. Specific Accounting Policies Changes in Accounting Policies  Cheques and other items in transit are recorded at cost and represent the net  position of the uncleared cheques and other items in transit between us and  o ther banks. We have a number of banking subsidiaries whose cash is available for use in their own business and may not be used by other related cor porations.  In addition, some of our subsidiaries are required to maintain reserves or minimum balances with central banks in their respec- tive countries of operation amounting to $257 as at October 31, 2002 and $472 as at October 31, 2001. Cash Restrictions Cheques and Other Items in Transit, Net Deposits with Banks NOTE 2 Cash Resources Deposits with banks are recorded at cost and include acceptances which we have purchased that have been issued by other banks. Interest income earned on these deposits is recorded on an accrual basis. Securities are divided into three components, each with a different purpose and accounting treatment. The three types of securities we hold are as follows: NOTE 3 Securities 2002 2001 Cash and non-interest bearing deposits  with Bank of Canada and other banks $ 1,257 $ 2,066 Interest bearing deposits with banks 15,604 14,197 Cheques and other items in transit, net 2,444 1,393 Total $ 19,305 $ 17,656 Prior to November 1, 2001, we amortized goodwill that arose at the time of  acquisition when adjusting the value of our investment securities where we exert significant influence. This change in accounting requirements is described in Note 9. Change in Accounting Policy  We did not own any securities issued by a single non-government entity where the book value, as at October 31, 2002 or October 31, 2001, was greater than 10% of our shareholders’ equity. NOTE 1 Basis of Presentation (Canadian $ in millions, unless otherwise stated) NOTES TO CONSOLIDATED FIN ANCIAL STATEMENTS b Trading securities  are securities that we purchase for resale over a short period of time. We report these securities at their market value and record the mark-to-market adjustments and any gains and losses on the sale of these securities in our Consolidated Statement of Income in trading revenues. b Investment securities  are comprised of equity and debt securities that we purchase with the intention of holding until maturity or until market conditions, such as a change in interest rates, provide us with a better investment opportu- nity. Equity securities are recorded at cost and debt securities at amortized cost.  Our investments in equity securities where we exert significant influence,  but not control, over a corporation are recorded at cost and adjusted for our proportionate share of the corporationGLYPH<213>s net income or loss. When we identify a decline in value that is other than temporary, the affected securities are written down to their fair value. Any write-downs or gains and losses on the disposal of our investment securities are recorded in the year they occur and are included  in our Consolidated Statement of Income as either an increase or a decrease  in investment securities gains (losses). Gains and losses on disposal are  calculated using the average cost of the securities sold. Investment securities of designated countries are accounted for in accordance with our accounting policy for loans which is described in Note 4. b Loan substitute securities  are customer financings, such as distressed  preferred shares, that we structure as after-tax investments to provide our  customers with an interest rate advantage over what would be applicable on  a conventional loan. These securities are accounted for in accordance with  our accounting policy for loans which is described in Note 4. 72 BMO FINANCIAL GROUP ANNUAL REPORT 2002