TD Bank 2007 Annual Report Download - page 87

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Financial Results 83
The impact on the Bank of adopting these new accounting
policies on November 1, 2006 is described as follows:
Trading
On transition, investments totalling $76.4 billion, previously
disclosed as trading securities in the audited Consolidated
Financial Statements for the year ended October 31, 2006,
were classified as trading on November 1, 2006.
Retained interests in securitizations with a carrying value
of $216 million, previously recorded at amortized cost, were
classified to trading securities. Certain deposit liabilities totaling
$35.5 billion were also classified as trading.
Available-for-sale
On transition, investments totalling $34.8 billion, previously
disclosed as investment securities in the audited Consolidated
Financial Statements for the year ended October 31, 2006, were
classified as available-for-sale on November 1, 2006. The change
in accounting policy related to other-than-temporary impairment
was not material.
Held-to-maturity
Investments totalling $10.1 billion were reclassified from invest-
ment securities to held-to-maturity securities on November 1,
2006. Bonds totalling $1.1 billion were reclassified from trading
securities to held-to-maturity securities on November 1, 2006.
Loans
This classification is consistent with the classification under the
prior accounting standards.
Financial assets and financial liabilities designated as trading
under the fair value option
On transition, the Bank designated $2.0 billion of financial
assets as trading under the fair value option. These assets had
been classified as investment securities under the previous
accounting standards.
(b) Derivatives and Hedge Accounting
Embedded Derivatives
Derivatives may be embedded in other financial instruments
(the “host instrument”). Prior to the adoption of the new
accounting standards on November 1, 2006, such embedded
derivatives were not accounted for separately from the host
instrument, except in the case of derivatives embedded in
principal protected equity-linked deposit contracts. Under the
new standards, embedded derivatives are treated as separate
contracts when their economic characteristics and risks are
not clearly and closely related to those of the host instrument,
a separate instrument with the same terms as the embedded
derivative would meet the definition of a derivative, and the
combined contract is not held for trading or designated as
trading under the fair value option. These embedded derivatives
are measured at fair value with subsequent changes recognized
in trading income.
The impact of the change in accounting policy related to
embedded derivatives was not material.
Hedge Accounting
Under the previous standards, derivatives that met the require-
ments for hedge accounting were generally accounted for on an
accrual basis. As discussed in Note 24, under the new standards,
all derivatives are recorded at fair value and specific guidance on
hedge accounting, including the measurement and recording of
hedge ineffectiveness, is now provided.
Upon adoption of the new standards, the Bank recorded a net
increase in derivative liabilities designated as fair value hedges of
$3 million, an increase of $14 million in loans and an increase of
$11 million in deposits. Also, the Bank recorded a net increase in
derivative assets of $212 million designated as cash flow hedges
and an increase of $212 million pre-tax in accumulated other
comprehensive income.
The adoption of the new standards resulted in the reclassifica-
tion of $918 million relating to the hedges of net investments in
foreign operations, previously recorded in the foreign currency
translation adjustment account, to opening accumulated other
comprehensive income.
The following table summarizes the adjustments required to
adopt the new standards on November 1, 2006.
Transition Adjustments, Net of Income Taxes
Retained earnings
Accumulated other
comprehensive income
(millions of Canadian dollars) Gross Net of income taxes Gross Net of income taxes
Classification of securities as available-for-sale $ – $ – $ 440 $ 287
Classification of securities as trading 76 50 – –
Designation of securities as trading under the fair value option 7 4 – –
Reversal of transition balances deferred upon adoption
of AcG-13 37 25 – –
Cash flow hedges – – 212 139
Other (4) 1 – –
Total $ 116 $ 80 $ 652 $ 426
There were no other changes in the Bank’s accounting policies
during the year.
COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform
with the presentation adopted in 2007.
SPECIFIC ACCOUNTING POLICIES
To facilitate a better understanding of the Bank’s Consolidated
Financial Statements, significant accounting policies are disclosed
in the notes, where applicable, with related financial disclosures.
A listing of all the notes is as follows: