TD Bank 2009 Annual Report Download - page 100

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 FINANCIAL RESULTS96
Financial Instruments – Disclosures
In March 2009, the AcSB amended CICA Handbook Section 3862,
Financial Instruments – Disclosures, to enhance the disclosure require-
ments regarding fair value measurements including the relative
reliability of the inputs used in those measurements and the liquidity
risk of financial instruments. The standard also requires disclosure
of a three-level hierarchy for fair value measurements based upon
the transparency of inputs to the valuation of an asset or liability
as of the measurement date. The amendments are effective for the
Bank’s 2009 annual Consolidated Financial Statements and its
adoption did not have an impact on the financial position, cash flows,
or earnings of the Bank as Section 3862 relates to disclosures.
Goodwill, Intangible Assets and Financial Statement Concepts
Effective November 1, 2008, the Bank adopted CICA Handbook
Section 3064, Goodwill and Intangible Assets, which clarifies that
costs can be deferred only when they relate to an item that meets
the definition of an asset, and as a result, start-up costs must be
expensed as incurred. CICA Handbook Section 1000, Financial State-
ment Concepts, was also amended to provide consistency with the
new standard. The adoption of these standards did not have a material
impact on the financial position, cash flows, or earnings of the Bank.
Credit Risk and Fair Value
Effective November 1, 2008, the Bank adopted the CICA Emerging
Issues Committee Abstract (EIC) 173, Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities. The abstract clarifies how the
Bank’s own credit risk and the credit risk of the counterparty should
be taken into account in determining the fair value of financial assets
and financial liabilities, including derivatives. The new guidance did not
have a material impact on the financial position, cash flows, or earn-
ings of the Bank.
Future Accounting and Reporting Changes
Conversion to International Financial Reporting Standards
The AcSB confirmed that Canadian GAAP for publicly accountable
entities will converge with International Financial Reporting Standards
(IFRS). For the Bank, IFRS will be effective for the interim and annual
periods beginning in the first quarter of 2012. The fiscal 2012
Consolidated Financial Statements will include comparative fiscal
2011 financial results under IFRS. The Bank is assessing the impact
of IFRS on its consolidated financial statements upon adoption in
the first quarter of 2012.
SECURITIES
The Bank classifies securities pursuant to the requirements of CICA
Handbook Section 3855 as trading (including those designated as
trading under the fair value option, described in Note 4), available-
for-sale, or held-to-maturity. Debt securities classified as loans are
discussed in Note 3.
Trading
Securities purchased with the intention of generating profits in the
near term are recorded on a trade date basis and are classified as trad-
ing. Transaction costs are expensed as incurred. These securities are
accounted for at fair value with the change in fair value as well as any
gains or losses realized on disposal recognized in trading income. Fair
value is determined based on quoted market prices. Where quoted
market prices are not readily available, fair value is determined based on
quoted market prices for similar securities, other third-party evidence
or by using another valuation technique. Dividends are recognized on
the ex-dividend date and interest income is recognized on an accrual
basis using the effective interest rate method. Both are included in
interest income.
Available-for-Sale
Securities classified as available-for-sale are recorded on a trade date
basis and are carried at fair value with changes in fair value recorded
in other comprehensive income. Equity securities that are classified as
available-for-sale and do not have a readily available market value are
recorded at cost. Available-for-sale securities are written down to fair
value through the Consolidated Statement of Income whenever it is
necessary to reflect other-than-temporary impairment. Gains and losses
realized on disposal of available-for-sale securities are calculated on an
average cost basis. Both are recognized in net securities gains (losses)
in non-interest income. Dividends are recognized on the ex-dividend
date and interest income is recognized on an accrual basis using the
effective interest rate method. Both are included in interest income.
Held-to-Maturity
Securities with a fixed maturity date, that the Bank intends and has
the ability to hold to maturity are classified as held-to-maturity and
accounted for at amortized cost. Interest income is recognized on an
accrual basis using the effective interest rate method and is included
in interest income.
IMPAIRMENT OF AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are written down to fair value through net
securities gains (losses) in non-interest income whenever it is necessary
to reflect other-than-temporary impairment. In the case of debt securities
classified as available-for-sale, a subsequent increase in the fair value that
can be objectively related to an event that occurred after the impair-
ment was recognized will result in a reversal of the impairment loss.
IMPAIRMENT OF HELD-TO-MATURITY SECURITIES
For held-to-maturity securities, an impairment loss is recognized when
there is objective evidence that there has been a deterioration of
credit quality subsequent to the initial recognition of the security 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.
The impairment loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows
discounted at the asset’s original effective interest rate.
RECLASSIFICATION OF CERTAIN DEBT SECURITIES
As described in Note 1, the Bank adopted new accounting standards
related to the classification of debt securities in 2009 and 2008.
2009 Amendments
The Bank reclassified certain available-for-sale and held-to-maturity
debt securities to loans effective November 1, 2008, at their amortized
cost as of that date. For details concerning the assets reclassified, see
Note 1a).
2008 Amendments
During 2008, the Bank changed its trading strategy with respect to
certain trading debt securities as a result of deterioration in markets
and severe dislocation in the credit market. These debt securities were
previously recorded at fair value with changes in fair value, as well as
any gains or losses realized on disposal, recognized in trading income.
Since the Bank no longer intends to actively trade in these debt securi-
ties, the Bank reclassified these debt securities from trading to the
available-for-sale category effective August 1, 2008 in accordance with
the 2008 Amendments to CICA Handbook Section 3855 and CICA
Handbook Section 3862.
On August 1, 2008, the fair value of debt securities reclassified from
trading to available-for-sale was $6,979 million. In addition, on the
date of reclassification, these debt securities had a weighted-average
effective interest rate of 6.99% with expected recoverable cash flows,
on an undiscounted basis, of $9,732 million.
SECURITIES
NOTE 2