TD Bank 2006 Annual Report Download - page 81

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Financial Results 77
BANK ACT
The accompanying Consolidated Financial Statements and
accounting principles followed by The Toronto-Dominion Bank
(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,
liabilities, results of operations and cash flows of subsidiaries
and certain variable interest entities (VIEs) after elimination
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 and the income accruing to the minority interest
holders, net of tax, is disclosed as a separate line item in the
Consolidated Statement of Income.
The proportionate consolidation method is used to account
for investments in which the Bank exercises joint control. Only
the Bank’s specific pro-rata share of assets, liabilities, income
and expenses is consolidated.
Entities over which the Bank has significant influence are
reported in investment securities, except for TD Ameritradewhich
is reported separately, and are accounted for using the equity
method of accounting. The Bank’s share of 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 the Consolidated Statement of Income.
USE OF ESTIMATES IN THE PREPARATION
OF FINANCIAL STATEMENTS
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions based
on information available as at the date of the financial state-
ments. Actual results could materially differ from those estimates.
Loan losses, fair value of financial instruments held in trading
portfolios, consolidation of VIEs, income taxes, valuation of
investment securities, securitizations, valuation of goodwill and
other intangibles, pensions and post-retirement benefits and con-
tingent 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
Monetary assets and liabilities denominated in foreign currencies
aretranslated at exchange rates prevailing at the balance sheet
date and non-monetary assets and liabilities are translated at his-
torical exchange rates. Foreign currency income and expenses are
translated at average exchange rates prevailing throughout the
year. Unrealized translation gains and losses and all realized gains
and losses are included in other income.
For self-sustaining foreign currency denominated operations,
all assets and liabilities are translated at exchange rates in effect
at the balance sheet date and all income and expenses are
translated at average exchange rates for the year. Unrealized
translation gains and losses relating to the Bank’s self-sustaining
operations, net of any offsetting gains or losses arising from
hedges of these positions, and applicable income taxes, are
included in shareholders’ equity. On disposal of these invest-
ments, the accumulated translation gain or loss is included in
other income.
Notes to Consolidated Financial Statements
Note Topic Page
2 Securities 78
3 Loans, Impaired Loans and Allowance for Credit Losses 80
4 Loan Securitizations 81
5 Goodwill and Other Intangibles 83
6 Variable Interest Entities 83
7 Land, Buildings and Equipment 84
8Deposits 84
9 Other Assets 85
10 Other Liabilities 85
11 Subordinated Notes and Debentures 85
12 Liabilities for Preferred Shares and Capital Trust Securities 86
13 Share Capital 88
14 Stock-based Compensation 89
15 Employee Future Benefits 90
16 Income Taxes 95
17 Fair Value of Financial Instruments 96
18 Interest Rate Risk 97
19 Derivative Financial Instruments 99
20 Contingent Liabilities, Commitments and Guarantees 102
21 Concentration of Credit Risk 104
22 Trading-related Income 104
23 Insurance 105
24 Segmented Information 105
25 Acquisitions and Dispositions 107
26 Restructuring Costs 108
27 Earnings Per Share 109
28 Related Party Transactions 109
29 Reconciliation of Canadian and U.S.
Generally Accepted Accounting Principles 110
30 Subsequent Events 113
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE 1
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and amounts due from
banks. These deposits are issued by investment grade financial
institutions.
REVENUE RECOGNITION
Investment and securities services includes asset management,
administration and commission fees, and investment banking
fees. Asset management, administration and commissions fees
from investment management and related services, custody
and institutional trust services and brokerage services are all
recognized over the period in which the related service is ren-
dered. Investment banking fees include advisory fees, which are
recognized as income when earned, and underwriting fees, net
of syndicate expenses, which are recognized as income when
the Bank has rendered all services to the issuer and is entitled
to collect the fee.
Card services include interchange income from credit and debit
cards, annual fees and servicing fees in connection with securiti-
zation activities. Fee income is recognized as earned, except for
annual fees, which are recognized over a 12-month period.
COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform
with the presentation adopted in 2006.
SPECIFIC ACCOUNTING POLICIES
To facilitate a better understanding of the Bank’s Consolidated
Financial Statements, significant accounting policies are disclosed
in the notes whereapplicable with related financial disclosures.
Alisting of all the notes is as follows: