TD Bank 2011 Annual Report Download - page 81

TD BANK GROUP ANNUAL REPORT 2011 MANAGEMENT’S DISCUSSION AND ANALYSIS 79
Other intangible assets with an indefinite life are not subject to
amortization; rather, they should be assessed annually for impairment.
As at October 31, 2011, the Bank does not have any indefinite life
intangibles. Finite life intangible assets that are subject to amortiza-
tion, after initial recognition, are amortized over their estimated useful
life. Finite life intangible assets are assessed for impairment when an
event or changes in circumstances indicate that the assets might be
impaired. Determining the estimated useful life and the identification
of any events or changes in circumstances affecting the recoverability
of carrying value of these finite life intangible assets requires an analy-
sis of facts and management’s judgment. When events or changes in
circumstances indicate that the carrying value may not be recoverable
and the carrying value is higher than the sum of undiscounted cash
flows expected from the asset’s use and eventual disposition, the asset
is written down to its fair value.
This accounting policy impacts all of the Bank’s business segments.
See Note 9 to the Consolidated Financial Statements for additional
disclosures regarding goodwill and other intangibles.
EMPLOYEE FUTURE BENEFITS
Pension and other post employment benefit plan obligations and
expenses are dependent on the assumptions used in calculating these
amounts. The actuarial assumptions of expected long-term return on
plan assets, compensation increases, health care cost trend rate and
discount rate are management’s best estimates and are reviewed annu-
ally with the Bank’s actuaries. The Bank develops each assumption
using relevant experience in conjunction with market related data and
considers if there is any prolonged or significant impact on the assump-
tions. The discount rate used to value liabilities is based on long-term
corporate AA bond yields as at the measurement date. The expected
long term return on plan assets is based on historical returns and future
expectations for returns for each asset class, as well as the target
asset allocation of the fund. The other assumptions are also long-term
estimates. All assumptions are subject to a degree of uncertainty.
Differences between actual experience and the assumptions, as well
as changes in the assumptions resulting from changes in future expec-
tations, result in increases or decreases in the pension and other post
employment benefit plan obligations and expenses in future years.
All of the Bank’s segments are impacted by this accounting policy.
The following table provides the sensitivity of the projected benefit
obligation and the expense for the Bank’s principal pension plans to
changes in the discount rate and assumptions for expected long-term
return on plan assets and compensation increases. The sensitivity
analysis provided in the table is hypothetical and should be used with
caution. For a further discussion of the key assumptions used in deter-
mining the Bank’s projected benefit obligation and annual expense see
Note 23 to the Consolidated Financial Statements.
INCOME TAXES
We are subject to taxation in numerous jurisdictions. There are many
transactions and calculations for which the ultimate tax determination
is uncertain during the ordinary course of business. We maintain provi-
sions for uncertain tax positions that we believe appropriately reflect
our risk with respect to tax positions under discussion, audit, dispute,
or appeal with tax authorities, or which are otherwise considered to
involve uncertainty. These provisions are made using the best estimate
of the amount expected to be paid based on a qualitative assessment
of all relevant factors. We assess the adequacy of these provisions at
the end of each reporting period. However, it is possible that at some
future date, an additional liability could result from audits by the rele-
vant taxing authorities. Provisions are reversed to income in the period
in which management assesses they are no longer required or as deter-
mined by statute.
Future income taxes are recorded to account for the effects of future
taxes on transactions occurring in the current period. The accounting
for future income taxes impacts all of the Bank’s segments and requires
judgment in the following key situations:
• Future tax assets are assessed for recoverability. The Bank records a
valuation allowance when it believes, based on all available evidence,
that it is more likely than not that all of the future tax assets recog-
nized will not be realized before their expiration. The amount of the
future income tax asset recognized and considered realizable could,
however, be reduced if projected income is not achieved due to vari-
ous factors, such as unfavourable business conditions. If projected
income is not expected to be achieved, the Bank would record an
additional valuation allowance to reduce its future tax assets to the
amount that it believes can be realized. The magnitude of the valua-
tion allowance is significantly influenced by the Bank’s forecast of
future profit generation, which determines the extent to which it will
be able to utilize the future tax assets.
• Future tax assets are calculated based on tax rates expected to be in
effect in the period in which they will be realized. Previously recorded
tax assets and liabilities need to be adjusted when the expected date
of the future event is revised based on current information.
• The Bank has not recognized a future income tax liability for undis-
tributed earnings of certain operations as it does not plan to repa-
triate them. Estimated taxes payable on such earnings in the event
of repatriation would be $494 million at October 31, 2011.
CONTINGENT LIABILITIES
Contingent liabilities arise when there is some uncertainty whether,
as a result of a past event or transaction, the Bank will incur a loss in
the future. The Bank and its subsidiaries are involved in various legal
actions in the ordinary course of business, many of which are loan-
related. In management’s opinion, the ultimate disposition of these
actions, individually or in the aggregate, will not have a material
adverse effect on the financial condition of the Bank.
Contingent loss accruals are established when it becomes likely that
the Bank will incur an expense and the amount can be reasonably esti-
mated. In addition to the Bank’s management, for contingent litigation
loss accruals, internal and external experts are involved in assessing the
likelihood and in estimating any amounts involved. Throughout the
existence of a contingency, the Bank’s management or its experts may
learn of additional information that may impact its assessments about
probability or about the estimates of amounts involved. Changes in
these assessments may lead to changes in recorded loss accruals. In
addition, the actual costs of resolving these claims may be substantially
higher or lower than the amounts accrued for those claims.
See Note 29 to the Consolidated Financial Statements for
more details.
(millions of Canadian dollars, except as noted) Obligation Expense
Impact of a change of 1.0% in key assumptions
Discount rate assumption used 5.42% 5.81%
Decrease in assumption $ 600 $ 97
Increase in assumption (495) (100)
Expected long-term return on assets assumption used n/a 6.41%
Decrease in assumption n/a 28
Increase in assumption n/a (28)
Rate of compensation increase assumption used 3.50% 3.50%
Decrease in assumption $ (173) $ (37)
Increase in assumption 187 43
SENSITIVITY OF CHANGE IN KEY ASSUMPTIONS
TABLE 58