TD Bank 2011 Annual Report Download - page 153

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TD BANK GROUP ANNUAL REPORT 2011 FINANCIAL RESULTS 151
In addition, under Canadian GAAP, the Bank was not required to
recognize regulatory funding deficits. Under IFRS, the Bank is required
to record a liability equal to the present value of all future cash
payments required to eliminate any regulatory funding deficits related
to its employee benefit plans.
Defined Benefit Plans – Attributing Benefits to Periods of Service
Under Canadian GAAP, for a defined benefit plan other than a pension
plan, the obligation for employee future benefits should be attributed
on a straight-line basis to each year of service in the attribution period
unless the plan formula attributes a significantly higher level of benefits
to employees’ early years of service. Under those circumstances, the
obligation should be attributed based on the plan’s benefit formula.
IFRS requires that benefits be attributed to periods of service either
under the plan benefit formula or on a straight-line basis from the date
when service first leads to benefits to the date when further service
will lead to no material amount of further benefits, other than from
further salary increases. For the Bank’s principal non-pension post-
retirement plan, benefits are not earned until certain criteria are met.
As a result, the attribution period will be shorter under IFRS, resulting
in a reduction in the accrued benefit liability on transition to IFRS.
The impact of these other employee benefit differences between
Canadian GAAP and IFRS to the Bank’s IFRS opening Consolidated
Balance Sheet as at November 1, 2010 was a decrease to other assets
of $95 million, an increase to deferred tax assets of $26 million, an
increase to other liabilities of $8 million, and a decrease to opening
retained earnings of $77 million.
d) Business Combinations: Elective Exemption
As permitted under IFRS transition rules, the Bank has applied IFRS 3,
Business Combinations (IFRS 3) to all business combinations occurring
on or after January 1, 2007. Certain differences exist between IFRS and
Canadian GAAP in the determination of the purchase price allocation.
The most significant differences are described below.
Under Canadian GAAP, an investment in a subsidiary which is
acquired through two or more purchases is commonly referred to as a
“step acquisition”. Each transaction is accounted for as a step-by-step
purchase, and is recognized at the fair value of the net assets acquired
at each step. Under IFRS, the accounting for step acquisitions differs
depending on whether a change in control occurs. If change in control
occurs, the acquirer remeasures any previously held equity investment
at its acquisition-date fair value and recognizes any resulting gain or
loss in the Consolidated Statement of Income. Any transactions subse-
quent to obtaining control are recognized as equity transactions.
Under Canadian GAAP, shares issued as consideration are measured
at the market price over a reasonable time period before and after the
date the terms of the business combination are agreed upon and
announced. Under IFRS, shares issued as consideration are measured
at their market price on the closing date of the acquisition.
Under Canadian GAAP, an acquirer’s restructuring costs to exit an
activity or to involuntarily terminate or relocate employees are recog-
nized as a liability in the purchase price allocation. Under IFRS, these
costs are generally expensed as incurred and not included in the
purchase price allocation.
Under Canadian GAAP, costs directly related to the acquisition
(i.e., finder fees, advisory, legal, etc.) are included in the purchase price
allocation, while under IFRS these costs are expensed as incurred and
not included in the purchase price allocation.
Under Canadian GAAP, contingent consideration is recorded when
the amount can be reasonably estimated at the date of acquisition and
the outcome is determinable beyond reasonable doubt, while under
IFRS contingent consideration is recognized immediately in the
purchase price equation at fair value and marked to market as events
and circumstances change in the Consolidated Statement of Income.
The impact of the differences between Canadian GAAP and IFRS to
the Bank’s IFRS opening Consolidated Balance Sheet is disclosed in
the table below.
Business Combinations: Elective Exemption
(millions of Canadian dollars) As at
Nov. 1, 2010
Increase/(decrease) in assets:
Available-for-sale securities $ (1)
Goodwill (2,147)
Loans – residential mortgages 22
Loans – consumer instalment and other personal
Loans – business and government
Intangibles (289)
Land, buildings and equipment and other depreciable assets 2
Deferred tax assets (12)
Other assets 104
(Increase)/decrease in liabilities:
Deferred tax liabilities 102
Other liabilities 37
Subordinated notes and debentures 2
Increase/(decrease) in equity $ (2,180)
The total impact of business combination elections to the Bank’s IFRS
opening equity was a decrease of $2,180 million, comprised of a
decrease to common shares of $926 million, a decrease to contributed
surplus of $85 million and a decrease to retained earnings of
$1,169 million.
e) Designation of Financial Instruments: Elective Exemption
Under IAS 39, Financial Instruments: Recognition and Measurement,
entities are permitted to make certain designations only upon initial
recognition. IFRS 1 provides entities with an opportunity to make these
designations on the date of transition to IFRS provided the asset or
liability meets certain criteria specified under IFRS at that date.
The Bank has designated certain held-to-maturity financial assets to
available-for-sale financial assets. The impact of this designation on the
Bank’s IFRS opening Consolidated Balance Sheet as at November 1,
2010 was an increase to available-for-sale securities of $9,937 million,
a decrease to held-to-maturity securities of $9,715 million, an increase
to deferred tax liabilities of $57 million, and an increase to opening
equity of $165 million. The total impact to the Bank’s opening equity
comprised of an increase to accumulated other comprehensive income
of $165 million and no impact to retained earnings.
f) Cumulative Translation Differences: Elective Exemption
The Bank has elected to reclassify all cumulative translation differences
on its foreign operations net of hedging activities which were recorded
in accumulated other comprehensive income, to retained earnings on
transition. As a result, the Bank has reclassified the entire balance of
cumulative translation losses at transition date of $2,947 million from
accumulated other comprehensive income into retained earnings, with
no resulting net impact on equity.
g) Loan Origination Costs: Other Differences between
Canadian GAAP and IFRS
Under Canadian GAAP, costs that are directly attributable to the
origination of a loan, which include commitment costs, were deferred
and recognized as an adjustment to the loan yield over the expected
life of the loan using the effective interest rate method. Under IFRS,
loan origination costs must be both directly attributable and incremen-
tal to the loan origination in order to be deferred and amortized and
recognized as a yield adjustment over the expected life of the loan.
On transition to IFRS certain costs that were previously permitted to be
deferred under Canadian GAAP have been expensed into opening
retained earnings as they are not considered to be incremental to the
loan origination. The impact of this difference to the Bank’s IFRS
opening Consolidated Balance Sheet as at November 1, 2010 was a
decrease to loans of $458 million and other assets of $88 million,
an increase to deferred tax assets of $155 million, and a decrease to
opening retained earnings of $391 million.