TD Bank 2006 Annual Report Download - page 74

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis
70
ACCOUNTING STANDARDS AND POLICIES
Controls and Procedures
DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with
the participation of the Bank’s management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the Bank’s disclosure controls and procedures, as defined in
the rules of the U.S. Securities and Exchange Commission and
Canadian Securities Administrators, as of October 31, 2006.
Based on that evaluation, the Bank’s management, including the
Chief Executive Officer and Chief Financial Officer, concluded
that the Bank’sdisclosurecontrols and procedures were effective
as of October 31, 2006.
MANAGEMENT'S REPORTON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Bank’s management is responsible for establishing and main-
taining adequate internal control over financial reporting for the
Bank. The Bank’sinternal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records, that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets
of the Bank; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Bank are
being made only in accordance with authorizations of the Bank’s
management and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisi-
tion, use or disposition of the Bank’sassets that could have a
material effect on the financial statements.
The Bank’s management has used the criteria established in
Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commissionto assess, with the participation of the Chief
Executive Officer and Chief Financial Officer, the effectiveness of
the Bank’s internal control over financial reporting. Based on this
assessment, management has concluded that as at October 31,
2006, the Bank’s internal control over financial reporting was
effective based on the applicable criteria. Management’s assess-
ment of the effectiveness of internal control over financial
reporting has been audited by its independent auditors, Ernst &
Young LLP, a registered public accounting firm that has also
audited the Consolidated Financial Statements of the Bank for
the year ended October 31, 2006. Their report, on page 72,
expresses unqualified opinions on management’s assessment and
on the effectiveness of the Bank’s internal control over financial
reporting as of October 31, 2006.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING
During both 2006 and the most recent interim period, therehave
been no changes in the Bank’s internal controls over financial
reporting that have materially affected, or are reasonably likely
to materially affect, the Bank’sinternal controls over financial
reporting.
ACCOUNTING STANDARDS AND POLICIES
Future Accounting and
Reporting Changes
The Bank expects to adopt the following accounting standards
in the future. See Note 1 to the Bank’s Consolidated Financial
Statements for more details of future accounting and reporting
changes.
FINANCIAL INSTRUMENTS, HEDGES
AND COMPREHENSIVE INCOME
The CICA has issued three new accounting standards –
Financial Instruments – Recognition and Measurement, Hedges
and Comprehensive Income.These standards are substantially
harmonized with U.S. GAAP and are effective for the Bank
beginning November 1, 2006. The principal impacts of the
standards are detailed below.
•Other comprehensive income will be a new component of
shareholders’ equity and a new statement entitled Statement
of Comprehensive Income will be added to the Bank’s primary
Consolidated Financial Statements.
•Financial assets will be required to be classified as available
for sale, held to maturity, trading, or loans and receivables.
•For fair value hedges where the Bank is hedging changes in the
fair value of assets, liabilities or firm commitments, the change
in the fair value of derivatives and hedged items attributable to
the hedged risk will be recorded in the Consolidated Statement
of Income.
•For cash flow hedges wherethe Bank is hedging the variability
in cash flows related to variable rate assets, liabilities or fore-
casted transactions, the effective portion of the changes in
the fair values of the derivative instruments will be recorded
through other comprehensive income until the hedged items
are recognized in the Consolidated Statement of Income.
U.S. GAAP
Accounting For Certain Hybrid Financial Instruments
Effective November 1, 2007, the Bank will be required to adopt
FASB guidance on hybrid financial instruments. Under this guid-
ance, the Bank will be able to elect to measure certain hybrid
financial instruments at fair value in their entirety, with changes
in the fair value recognized in net income. The fair value election
will eliminate the need to separately recognize certain derivatives
embedded in these hybrid financial instruments.
Accounting For Servicing Financial Assets
Effective November 1, 2007, the Bank will be required to adopt
the FASB guidance on servicing financial assets. This guidance
will require the Bank to measure its servicing rights at fair value
initially, and allow the Bank to choose either to amortize them
over the term of the servicing rights, or to re-measure them at
fair value through net income. We are in the process of assessing
the impact of this guidance on the Bank’s Consolidated Financial
Statements.
Income Taxes
Effective November 1, 2007, the Bank will be required to adopt
the FASB interpretation on income taxes. The guidance provides
additional information on how to recognize, measure and dis-
close income tax benefits and liabilities. We are in the process of
assessing the impact of this guidance on the Bank’s Consolidated
Statements.