TD Bank 2012 Annual Report Download - page 107

TD BANK GROUP ANNUAL REPORT 2012 FINANCIAL RESULTS 105
PROVISIONS
Provisions arise when there is some uncertainty in the timing or amount
of a loss in the future. Provisions are based on the Bank’s best estimate
of all expenditures required to settle its present obligations, considering
all relevant risks and uncertainties, as well as, when material, the effect
of the time value of money.
Many of the Bank’s provisions relate to various legal actions that the
Bank is involved in during the ordinary course of business. Legal provi-
sions require the involvement of both the Bank’s management and
legal counsel when assessing the probability of a loss and estimating
any monetary impact. Throughout the life of a provision, the Bank’s
management or legal counsel may learn of additional information that
may impact its assessments about the probability of loss or about the
estimates of amounts involved. Changes in these assessments may
lead to changes in the amount recorded for provisions. In addition,
the actual costs of resolving these claims may be substantially higher
or lower than the amounts recognized. The Bank reviews its legal
provisions on a case-by-case basis after considering, among other
factors, the progress of each case, the Bank’s experience, the experi-
ence of others in similar cases, and the opinions and views of
legal counsel.
INSURANCE
The assumptions used in establishing the Bank’s insurance claims and
policy benefit liabilities are based on best estimates of possible outcomes.
For property and casualty insurance, the ultimate cost to the Bank
will vary from the assumptions used to determine the liabilities recog-
nized, as additional information with respect to the facts and circum-
stance of each claim incurred is incorporated into the liability.
For life and health insurance, actuarial liabilities consider all future
policy cash flows, including premiums, claims, and expenses required
to administer the policies.
The Bank’s mortality assumptions have been derived from a combi-
nation of its own experience and industry experience. Policyholders
may allow their policies to lapse by choosing not to continue to pay
premiums. The Bank bases its estimates of future lapse rates on previ-
ous experience when available, or industry experience. Estimates of
future policy administration expenses are based on the Bank’s previous
and expected future experience.
CONSOLIDATION OF SPECIAL PURPOSE ENTITIES
Management judgment is required when assessing whether the Bank
should consolidate an entity, particularly complex entities. For exam-
ple, given that SPEs may not be controlled directly through holding the
majority of voting rights, management judgment is required to assess
whether all the relevant facts and circumstances, when considered
together, would indicate that the Bank controls such an SPE, including
an analysis of the Bank’s exposure to the risks and rewards of the SPE.
These judgments are discussed further in Note 2.
CURRENT AND FUTURE CHANGES IN ACCOUNTING POLICIES
NOTE 4
• IFRS 7, Financial Instruments: Disclosures (IFRS 7), which provides
common disclosure requirements intended to help investors and
other users better assess the effect or potential effect of offsetting
arrangements on a company’s financial position.
The IAS 32 amendments are effective for annual periods beginning on
or after January 1, 2014, which will be November 1, 2014 for the
Bank. The IFRS 7 amendments are effective for annual periods begin-
ning on or after January 1, 2013, which will be November 1, 2013 for
the Bank. Both amendments are to be applied retrospectively. The IAS
32 amendments are not expected to have a material impact on the
financial position, cash flows or earnings of the Bank. The Bank is
currently assessing the impact of the IFRS 7 amendments.
Consolidation
The IASB issued the following new and amended guidance related to
consolidated financial statements:
• IFRS 10, Consolidated Financial Statements (IFRS 10), which replaces
IAS 27, Consolidated and Separate Financial Statements, and
SIC-12, Consolidation – Special-Purpose Entities;
• IFRS 11, Joint Arrangements;
• IFRS 12, Disclosure of Interests in Other Entities; and
• IAS 27 (Revised 2011), Separate Financial Statements, which has
been amended for conforming changes on the basis of the issuance
of IFRS 10 and IFRS 11.
The standards and amendments resulted in a revised definition of
control that applies to all entities. Each of the above standards is effec-
tive for annual periods beginning on or after January 1, 2013, which
will be November 1, 2013 for the Bank. The adoption of the above
standards will require the Bank to re-assess its consolidation analyses
for all of its SPEs and its involvement with other third party entities and
will potentially result in additional disclosures. The Bank is currently
assessing the impact of adopting these standards.
Fair Value Measurement
IFRS 13, Fair Value Measurement (IFRS 13), provides guidance for
measuring fair value and for disclosing information about fair value
measurements. IFRS 13 applies to other IFRS standards that require
or permit fair value measurements or disclosures about fair value
measurements and sets out a framework on how to measure fair
CURRENT CHANGES IN ACCOUNTING POLICIES
The following amendments have been adopted by the Bank.
Disclosures – Transfer of Financial Assets
The amendments to IFRS 7, Financial Instruments: Disclosures (IFRS 7),
issued in October 2010, increase the disclosure requirements for trans-
actions involving transfers of financial assets. These amendments are
intended to provide greater transparency around risk exposures when
a financial asset is transferred but the transferor retains some level of
continuing involvement in the asset. The amendments also require
disclosures where transfers of financial assets do not occur evenly
throughout the period. The amendment is effective for annual periods
beginning on or after July 1, 2011 and comparative disclosures are not
required for any period beginning before that date. The amendments
to IFRS 7 have been adopted by the Bank as at October 31, 2012 on a
prospective basis.
FUTURE CHANGES IN ACCOUNTING POLICIES
The following standards have been issued, but are not yet effective on
the date of issuance of the Bank’s Consolidated Financial Statements.
The Bank is currently assessing the impact of the application of these
standards on the Consolidated Financial Statements and will adopt
these standards when they become effective.
Financial Instruments – Classification and Measurement
IFRS 9, Financial Instruments (IFRS 9), reflects the first phase of the
IASB’s work on the replacement of the current IFRS financial instru-
ments standard (IAS 39) and applies to the classification and measure-
ment of financial assets and liabilities. The IASB decided in November
2011 to delay the mandatory effective date of IFRS 9 to annual periods
beginning on or after January 1, 2015, which will be November 1,
2015 for the Bank, and tentatively agreed to a limited reconsideration
of IFRS 9. The Bank is currently assessing the impact of adopting IFRS
9, as well as any potential future amendments thereto.
Presentation and Disclosures – Offsetting Financial Assets and
Financial Liabilities
In December 2011, the IASB issued the following amendments related
to the offsetting of financial instruments:
• IAS 32, Financial Instruments: Presentation (IAS 32), which clarifies
the existing requirements for offsetting financial assets and financial
liabilities; and