TD Bank 2003 Annual Report Download - page 61

TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 • Financial Results 59
Bank Act
The Bank Act stipulates that the Consolidated Financial
Statements are to be prepared in accordance with Canadian gen-
erally accepted accounting principles, except as specified by the
Superintendent of Financial Institutions Canada.
The accounting principles followed by the Bank including the
accounting requirements of the Superintendent of Financial
Institutions Canada conform with Canadian generally accepted
accounting principles.
Note 25 to the Consolidated Financial Statements describes
and reconciles the significant 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 after elimination
of intercompany transactions and balances. As of November 1,
2001, the Bank prospectively adopted the new accounting
standard 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 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 dollars 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 include cash and cash equivalents represented by
cash 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 pur-
chase 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 obligations
related to securities 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. The Bank takes possession of the
underlying collateral, monitors its market value relative to the
amounts due under the agreements and when necessary, requires
transfer of additional collateral or reduction in the balance to
maintain contractual margin protection. In the event of counter-
party default, the financing agreement provides the Bank with
the right to liquidate the collateral held.
(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
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 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 manage-
ment 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
addition, 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
commitment 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