TD Bank 2002 Annual Report Download - page 50

48
FINANCIAL RESULTS
Bank Act
The Bank Act stipulates that the consolidated financial state-
ments are to be prepared in accordance with Canadian generally
accepted accounting principles, except as specified by the
Superintendent of Financial Institutions Canada.
The accounting principles followed by the Bank conform with
Canadian generally accepted accounting principles, including the
accounting requirements of the Superintendent of Financial
Institutions Canada.
Note 22 to the consolidated financial statements describes and
reconciles the differences between Canadian and United States
generally accepted accounting principles.
The significant accounting policies and practices followed by
the Bank are:
(a) Basis of consolidation
The consolidated financial statements include the assets and
liabilities and results of operations of subsidiaries, namely
corporations effectively controlled by the Bank. As of November 1,
2001, the Bank prospectively adopted the new accounting stan-
dard on business combinations. The Bank uses the purchase
method to account for all business acquisitions.
When the Bank effectively controls a subsidiary but does not
own all of the common and preferred shares, the non-controlling
interest in the net book value of the subsidiary is disclosed in the
consolidated balance sheet separately from the Bank’s share-
holders’ equity. The non-controlling interest in the subsidiary’s
net income is disclosed net of income taxes as a separate line
item in the consolidated statement of operations.
Corporations over which the Bank has significant influence are
reported in investment securities in the consolidated balance
sheet and are accounted for using the equity method of account-
ing. The Bank’s share of earnings of such corporations is reported
in interest income in the consolidated statement of operations.
(b) Use of estimates in the preparation of
financial statements
The preparation of the consolidated financial statements of the
Bank requires management to make estimates and assumptions
based on information available as of the date of the financial state-
ments. Therefore, actual results could differ from those estimates.
(c) Translation of foreign currencies
Foreign currency assets and liabilities are translated into
Canadian dollars at prevailing year-end rates of exchange. Foreign
currency income and expenses are translated into Canadian dol-
lars at the average exchange rates prevailing
throughout the year.
Unrealized translation gains and losses related to the Bank’s
investment positions in foreign operations, net of any offsetting
gains or losses arising from economic hedges of these positions
and applicable income taxes,
are included in shareholders’
equity. All other unrealized translation gains and losses and all
realized gains and losses are included in other income in the
consolidated statement of operations.
(d) Cash resources
Cash resources includes cash and cash equivalents represented
by cash and highly liquid deposits with the Bank of Canada and
non-interest-bearing deposits with other banks.
(e) Securities purchased under resale and sold under
repurchase agreements
Securities purchased under resale agreements consist of the
purchase of a security with the commitment by the Bank to resell
the security to the original seller at a specified price. Securities
sold under repurchase agreements consist of the sale of a security
with the commitment by the Bank to repurchase the security at a
specified price. Securities purchased under resale and sold under
repurchase agreements are carried at cost on the consolidated
balance sheet. The difference between the sale price and the
agreed repurchase price on a repurchase agreement is recorded
as interest expense. Conversely, the difference between the cost
of the purchase and the predetermined proceeds to be received
on a resale agreement is recorded as interest income.
(f) Securities
Investment account securities, excluding loan substitutes, are
securities where the Bank’s original intention is to hold to matur-
ity or until market conditions render alternative investments more
attractive, and which are generally available for sale. Investment
account securities include nonmarketable equity securities that
are not publicly traded. Investment account securities are carried
at cost or amortized cost, adjusted to net realizable value to recog-
nize other than temporary impairment. Gains and losses realized
on disposal are determined on the average cost basis. Such
gains, losses and writedowns are included in other income.
Trading account securities, including trading securities sold
short included in liabilities, are carried at market value. Gains
and losses on disposal and adjustments to market are reported
in other income.
Interest income earned, amortization of premiums and dis-
counts on debt securities and dividends received are included in
interest income.
Loan substitutes are securities which have been structured
as after-tax instruments rather than conventional loans in order
to provide the issuers with a borrowing rate advantage and
are identical in risk and security to bank loans of comparable
term. Loan substitutes are carried at cost less any allowance for
anticipated credit losses as described in (h).
(g) Loans
Loans are stated net of unearned income and an allowance for
credit losses.
Interest income is recorded on the accrual basis until such
time as the loan is classified as impaired. Interest on impaired
loans subsequently received is recorded as income only when
management has reasonable assurance as to the timely collection
of the full amount of the principal and interest.
An impaired loan is any loan where, in management’s opinion,
there has been a deterioration of credit quality to the extent that
the Bank no longer has reasonable assurance as to the timely
collection of the full amount of the principal and interest. In addi-
tion, any loan where a payment is contractually past due 90 days
is classified as impaired, other than a deposit with a bank, a
credit card loan, or a loan that is guaranteed or insured by Canada,
the provinces or an agency controlled by these governments.
Deposits with banks are considered impaired when a payment
is contractually past due 21 days. Credit card loans with payments
180 days in arrears are considered impaired and are entirely
written off.
Loan origination fees are considered to be adjustments to loan
yield and are deferred and amortized to interest income over the
term of the loan. Commitment fees are amortized to other income
over the commitment period when it is unlikely that the commit-
ment will be called upon; otherwise, they are deferred and
amortized to interest income over the term of the resulting loan.
Loan syndication fees are recognized in other income unless the
yield on any loans retained by the Bank is less than that of other
comparable lenders involved in the financing. In such cases
an appropriate portion of the fee is deferred and amortized to
interest income over the term of the loan.
NOTE 1Summary of significant accounting policies
Notes to consolidated financial statements