IGM Financial Inc.
Accounting Estimates & Policies

Summary of Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies are common in the mutual fund and other financial services industries; others are specific to IGM Financial's businesses and operations. IGM Financial's significant accounting policies are described in detail in Note 1 of the Consolidated Financial Statements.

The major critical accounting estimates and related judgments underlying the Company's financial statements are summarized below. Critical accounting estimates relating to Goodwill and intangibles, Income taxes and Deferred selling commissions relate to both the Investors Group and Mackenzie reportable segments while Employee future benefits applies to the Investors Group reportable segment.

• Goodwill and intangible assets - At December 31, 2004, goodwill totalled $2.4 billion and intangible assets totalled $900 million as reflected in Note 7 of the Consolidated Financial Statements. Under the Canadian Institute of Chartered Accountants (CICA) Section 3062 - Goodwill and Other Intangible Assets, the Company is required to test the fair value of goodwill and indefinite life intangible assets for impairment at least once a year. The Company performs that evaluation during the second quarter each year. These tests involve the use of estimates and assumptions appropriate in the circumstances. The annual impairment testing was completed for 2004 and management determined that no impairment charge was necessary.
• Income taxes - The provision for income taxes is determined on the basis of the anticipated tax treatment of transactions recorded in the Consolidated Statements of Income. The determination of the provision for income taxes requires interpretation of tax legislation in a number of jurisdictions. The recognition of future tax assets depends on management's assumption that future earnings will be sufficient to realize the future benefit. The amount of the future tax asset or liability recorded is based on management's best estimate of the timing of the realization of the assets or liabilities. If our interpretation of tax legislation differs from that of the tax authorities or if timing of reversals is not as anticipated, the provision for income taxes could increase or decrease in future periods. Additional information related to income taxes is included in Note 11 of the Consolidated Financial Statements.
• Employee Future Benefits - Accounting for pension and other post-retirement benefits requires estimates of future returns on plan assets, expected increases in compensation levels, trends in health care costs, as well as the appropriate discount rate for accrued benefit obligations. These estimates are discussed in Note 10 of the Consolidated Financial Statements.
• Deferred selling commissions - Commissions paid on the sale of certain mutual fund products are deferred and amortized over a maximum period of seven years. Prior to April 1, 2001, the maximum period for amortization for Investors Group was three years. On April 1, 2001 Investors Group revised the period of amortization of these expenditures to reflect a more accurate estimate of their useful life. This estimate is also consistent with that used by Mackenzie. The Company regularly reviews the carrying value of the deferred selling commissions with respect to any events or circumstances that indicate impairment or that an adjustment to the amortization period is necessary.

Changes In Accounting Policies

As disclosed in Note 1 of the Consolidated Financial Statements, IGM Financial adopted the following changes in accounting policies in 2004:

• CICA Section 3870 - Stock-Based Compensation and Other Stock-Based Payments, effective January 1, 2004, was amended to require expense treatment of all stock-based compensation and payments. Previously the standard encouraged, but did not require, the use of a fair value-based method to account for stockbased transactions with employees. On January 1, 2004, the Company adopted the amended standard retroactively without restatement of prior periods for all stock-based compensation and payments to employees since 2002. The cumulative effect of adopting the new recommendations in the Company's Consolidated Financial Statements was to both increase contributed surplus and decrease opening retained earnings by $1.1 million.
  
  The fair value of stock options is determined on each grant date. Compensation expense is recognized over the period that the stock options vest, with a corresponding increase in contributed surplus. When stock options are exercised, the proceeds together with the amount recorded in contributed surplus are added to share capital.
  
  
• CICA Accounting Guideline 13 - Hedging Relationships (AcG-13), effective January 1, 2004, was adopted by the Company on a prospective basis. AcG-13 specifies the circumstances in which hedge accounting is appropriate, including the identification, documentation, designation, and effectiveness of hedges and the discontinuance of hedge accounting. The Company reassessed its hedging relationships as at January 1, 2004 and determined that its interest rate swaps on mortgage banking activities did not qualify for hedge accounting under AcG-13. The impact on the Consolidated Financial Statements was not material.
  
  Derivatives that do not qualify for hedge accounting are carried at fair value on the Consolidated Balance Sheets, and changes in fair value are recorded in Net investment income and other in the Consolidated Statements of Income. Non-qualifying derivatives continue to be utilized on a basis consistent with the risk management policies of the Company and are monitored by the Company for effectiveness as economic hedges even if the specific hedge accounting requirements of AcG-13 are not met.

Future Accounting Changes

• CICA Section 3860 - Financial Instruments - Disclosure and Presentation, effective for fiscal years beginning on or after November 1, 2004, was amended to require obligations that can be settled at the issuer's option by issuing a variable number of the issuer's own equity instruments to be presented as liabilities rather than equity. On January 1, 2005, the Company will adopt the amended standard retroactively with restatement of prior periods. The Company's preferred shares will be reclassified from shareholders' equity to liabilities and the preferred dividends will be reclassified to operating expenses in the Consolidated Statements of Income. The change will not have any impact on basic earnings per share or net income available to common shareholders since preferred dividends are currently deducted from net income in determining these measures.
• CICA Accounting Guideline 15 - Consolidation of Variable Interest Entities (VIEs), effective for annual or interim periods beginning on or after November 1, 2004, which requires consolidation of VIEs by the primary beneficiary. The Company is currently reviewing the potential impact that this requirement may have on the financial statement disclosure in 2005.