TD Bank 2005 Annual Report Download - page 80

TD BANK FINANCIAL GROUP ANNUAL REPORT 2005 Financial Results
76
BANK ACT
The accompanying Consolidated Financial Statements and
accounting principles followed by the Bank including the
accounting requirements of the Superintendent of Financial
Institutions Canada conform with Canadian generally accepted
accounting principles (GAAP).
The significant accounting policies and practices followed
by the Bank are:
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include the assets
and liabilities, and results of operations of subsidiaries after elimi-
nation of intercompany transactions and balances. Subsidiaries
are corporations or other legal entities effectively controlled by
the Bank. The Bank uses the purchase method to account for all
business acquisitions.
When the Bank does not own all of the equity of the sub-
sidiary, the minority shareholders’ interest is disclosed in the
Consolidated Balance Sheet as non-controlling interest in
subsidiaries. The net income is disclosed as a separate line item
in the Consolidated Statement of Income.
Entities 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’sshareof earnings, gains and losses
realized on disposition and write downs to reflect other than
temporary impairment in the value of such entities is reported in
interest income and other income in the Consolidated Statement
of Income.
Variable interest entities (VIEs) are entities in which the total
equity investment at risk is not sufficient to permit the entity to
finance its activities without additional subordinate financial
support. The Bank identifies VIEs in which it has an interest,
determines whether it is the primary beneficiary of such entities
and if so, consolidates them.
The proportionate consolidation method is used to account for
investments in which the Bank exercises joint control. Only our
specific prorata share of assets, liabilities, income and expenses
is consolidated.
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
statements. Therefore, actual results could differ from those
estimates. Loan losses, fair value of financial instruments held
in trading portfolios, variable interest entities, income taxes,
valuation of investment securities, securitizations, valuation of
goodwill and other intangibles, pensions and post-retirement
benefits and contingent liabilities are areas where management
makes significant estimates and assumptions in determining
the amounts to be recorded in the Consolidated Financial
Statements.
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 aretranslated into Canadian dollars at the
average exchange rates prevailing throughout the fiscal year.
Unrealized translation gains and losses related to the Bank’s
investment positions in certain foreign operations, net of any
offsetting gains or losses arising from hedges of these positions
and applicable income taxes, areincluded in shareholders’ equity.
FINANCIAL RESULTS
Notes to Consolidated Financial Statements
ACCOUNTING POLICY CHANGES IN 2005
As of November 1, 2004, the Bank adopted the Canadian
Institute of Chartered Accountants (CICA) amendments to the
accounting standardon financial instruments – disclosureand
presentation on a retroactive basis with restatement of prior
period comparatives. See Note 12.
Note Topic Page
2 Securities 77
3 Loans, Impaired Loans and Allowance for Credit Losses 79
4 Loan Securitizations 80
5 Goodwill and Other Intangibles 82
6 Variable Interest Entities 83
7 Land, Buildings and Equipment 83
8 Deposits 84
9 Other Assets 84
10 Other Liabilities 84
11 Subordinated Notes and Debentures 84
12 Liabilities for Preferred Shares and Capital Trust Securities 85
13 Share Capital 87
14 Stock-based Compensation 88
15 Employee Future Benefits 89
16 Income Taxes 93
17 Fair Value of Financial Instruments 94
18 Interest Rate Risk 95
19 Derivative Financial Instruments 97
20 Contingent Liabilities, Commitments and Guarantees 99
21 Concentration of Credit Risk 101
22 Segmented Information 101
23 Acquisitions and Dispositions 103
24 Restructuring Costs 104
25 Earnings Per Share 105
26 Related Party Transactions 105
27 Reconciliation of Canadian and United States
Generally Accepted Accounting Principles 106
28 Subsequent Events 109
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE 1
All other unrealized translation gains and losses and all realized
gains and losses are included in other income in the Consolidated
Statement of Income.
COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform
with the presentation adopted in 2005.
SPECIFIC ACCOUNTING POLICIES
To facilitate a better understanding of the Bank’s Consolidated
Financial Statements, we have disclosed the significant
accounting policies in the applicable notes with related financial
disclosures as follows:
Restatement of Net Interest Income
(millions of Canadian dollars) 2005 2004 2003
Net interest income – prior to restatement $6,155 $5,943 $5,616
Less: Preferred dividends 79 78 87
Non-controlling interest in innovative
capital structures 68 92 92
Total $6,008 $5,773 $5,437
As of November 1, 2004, the Bank prospectively adopted
the CICA accounting guideline on the consolidation of variable
interest entities (VIEs). See Note 12.