TD Bank 2001 Annual Report Download - page 48

46
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 con form with
Canadian generally accepted accounting principles , including
the accounting requirements of the Superintendent of Financial
Institutions Canada.
Note 20 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. The purchase
method is used 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 sharehold-
ers’ 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 income.
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 accounting. The Bank’s share of earnings of such corporations
is reported in i nterest income in the consolidated statement
of income.
(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 a separate compo-
nent of 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 income.
(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 securi-
ty 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 consoli-
dated balance sheet. The difference between the sale price and
the agreed repurchase price on a repurchase agreement is record-
ed 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 maturi-
ty or until market conditions render alternative investments more
attractive, and which are generally available for sale. They are
carried at cost or amortized cost, adjusted to net realizable value
to recognize other than temporary impairment. Gains and losses
realized on disposal are determined on the average cost basis.
Such gains, losses and write-downs 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 identi-
cal 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 pay-
ments 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
NOTE 1 Summary of significant accounting policies
Notes to consolidated financial statements