TD Bank 2011 Annual Report Download - page 152

TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS150
These transfers will be accounted for as secured borrowing transac-
tions under IFRS, resulting in the recognition of securitization liabilities
for the proceeds received on the Bank’s Consolidated Balance Sheet.
This difference in accounting under IFRS has resulted in the following
adjustments to the Bank’s IFRS consolidated financial statements:
•
Securitized mortgages which were off-balance sheet under Canadian
GAAP have been recognized on the Bank’s Consolidated Balance
Sheet, resulting in an increase in residential loans, an increase in
trading loans, and a decrease in retained interests
•
Securitization liabilities not previously required under Canadian GAAP
have been recognized on the Bank’s Consolidated Balance Sheet,
resulting in an increase in securitization liabilities at amortized cost
and securitization liabilities at fair value.
•
The seller swap previously recorded under Canadian GAAP, no longer
exists under IFRS, as the payable portion of the swap is captured as
part of the securitization liabilities recognized under IFRS. Similarly,
the receivable portion of the swap is captured as part of securitized
mortgages recognized on the Consolidated Balance Sheet under
IFRS. The derecognition of the seller swap upon transition results in
a reduction of derivative assets or derivative liabilities on the Bank’s
Consolidated Balance Sheet.
• The Bank will no longer record securitization gains or losses upon
the transfer of financial assets that fail derecognition. Gains and
losses relating to assets recorded on the Bank’s Consolidated
Balance Sheet on transition have been reversed. Certain transaction
costs that were previously recorded as part of securitization gains
or losses have been capitalized against securitization liabilities.
• Retained earnings have increased as a result of interest income
earned on securitized mortgages which have been recognized on
the Bank’s Consolidated Balance Sheet under IFRS.
• Retained earnings have decreased as a result of interest expense
recorded relating to securitization liabilities which have been recog-
nized on the Bank’s Consolidated Balance Sheet under IFRS.
• Under IFRS, assets transferred to the PRA account no longer quali-
fies for derecognition, as the Bank maintains the risk and rewards
of ownership of those financial assets. These assets have been
recognized on the Bank’s Consolidated Balance Sheet resulting in
an increase to residential loans, an increase to trading assets,
and a decrease to obligation related to securities sold under repur-
chase agreements.
• Where the Bank has securitized mortgages with CMHC and has
received an MBS but has not sold the MBS to a third party, the MBS
remains on the Bank’s Consolidated Balance Sheet as a mortgage.
As a result, upon transition to IFRS, available-for-sale securities have
decreased and residential mortgages have increased.
The total impact to the Bank’s IFRS opening Consolidated Balance
Sheet is disclosed in the table below:
Impact of Derecognition of Financial Instruments
(millions of Canadian dollars) As at
Nov. 1, 2010
Increase/(decrease) in assets:
Trading loans, securities and other $ 5,494
Derivatives (220)
Financial assets designated at fair value
through profit or loss (918)
Available-for-sale securities (25,727)
Loans – residential mortgages 65,211
Deferred tax assets 299
Other assets 656
(Increase)/decrease in liabilities:
Securitization liabilities at fair value (27,256)
Derivatives 1,101
Obligations related to securities sold under
repurchase agreements 3,235
Securitization liabilities at amortized cost (23,078)
Current income tax payable (63)
Deferred tax liabilities (77)
Other liabilities 928
Increase/(decrease) in equity $ (415)
The total impact to the Bank’s IFRS opening equity was a decrease of
$415 million, comprised of an increase to accumulated other compre-
hensive income of $25 million and a decrease to retained earnings of
$440 million.
b) Hedge Accounting: Mandatory Exception
Hedge accounting can only be applied to hedging relationships that
meet the IFRS hedge accounting criteria upon transition to IFRS. All
hedging relationships that qualify for hedge accounting under IFRS
have been documented on the transition date.
Under Canadian GAAP, where a purchased option is a hedging
instrument in a designated cash flow hedge accounting relationship,
the assessment of effectiveness may be based on the option’s terminal
value and where certain circumstances are met, an entity can assume
no ineffectiveness and the entire change in fair value of the option
can be recognized in accumulated other comprehensive income. Under
IFRS, an entity must specifically indicate whether the time value is
included or excluded from a hedging relationship and must assess the
option for effectiveness. If the time value of the option is excluded,
changes in the options fair value due to time value are recognized
directly in earnings. At transition date, where options were designated
in cash flow hedge accounting relationships, the Bank excluded the
changes in fair value of the option due to time value from the hedging
relationship. The impact to the Bank’s IFRS opening Consolidated
Balance Sheet as at November 1, 2010 was an increase to accumulated
other comprehensive income of $73 million, and a decrease to opening
retained earnings of $73 million.
c) Employee Benefits
i) Employee Benefits: Elective Exemption
The Bank has elected to recognize unamortized actuarial gains or losses
in its IFRS opening retained earnings. The impact of this election to
the Bank’s IFRS opening Consolidated Balance Sheet as at November 1,
2010 was a decrease to other assets of $933 million, an increase to
deferred tax assets of $309 million, an increase to other liabilities of
$196 million, and a decrease to opening retained earnings of
$820 million.
ii) Employee Benefits: Other Differences between Canadian GAAP
and IFRS Measurement Date
Under Canadian GAAP, the defined benefit obligation and plan assets
may be measured up to three months prior to the date of the financial
statements as long as the measurement date is applied consistently.
Under Canadian GAAP, the Bank measured the obligation and assets
of its principal pension and non-pension post-retirement benefit plans
as at July 31.
IFRS requires that valuations be performed with sufficient regularity
such that the amounts recognized in the financial statements do not
differ materially from amounts that would be determined at the end of
the reporting period. Under IFRS, the Bank will measure the assets and
obligations of all defined benefit plans as at October 31.
Defined Benefit Plans – Past Service Costs
Canadian GAAP does not differentiate between accounting for the vested
and unvested cost of plan amendments, deferring and amortizing both
over the expected average remaining service life of active plan members.
Under IFRS, the cost of plan amendments is recognized immediately
in income if it relates to vested benefits; otherwise, they are recognized
over the remaining vesting period.
Defined Benefit Plans – Asset Ceiling Test
Under Canadian GAAP, when a defined benefit plan gives rise to a
prepaid pension asset, a valuation allowance is recognized for any
excess of the prepaid pension asset over the expected future benefits
expected to be realized by the Bank.
Under IFRS, the prepaid pension asset is subject to a ceiling which
limits the asset recognized on the Consolidated Balance Sheet to the
amount that is recoverable through refunds of contributions or future
contribution holidays.