TD Bank 2014 Annual Report Download - page 131

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 129
Investment and securities services income include asset management
fees, administration and commission fees, and investment banking
fees. Asset management fees and administration and commission fees
include income from investment management and related services,
custody and institutional trust services, and brokerage services, which
are recognized as income over the period in which the related service
is rendered. Investment banking fees, including advisory fees, are
recognized as income when earned, and underwriting fees are recog-
nized as income when the Bank has rendered all services to the issuer
and is entitled to collect the fee.
Credit fees include commissions, liquidity fees, restructuring fees,
and loan syndication fees and are recognized as earned.
Card services income, including interchange income from credit
and debit cards and annual fees, is recognized as earned, except for
annual fees, which are recognized over a twelve-month period.
Service charges, trust, and other fee income is recognized as earned.
Revenue recognition policies related to financial instruments and
insurance are described in the following accounting policies.
FINANCIAL INSTRUMENTS OTHER THAN DERIVATIVES
Trading Assets and Trading Liabilities
Financial instruments are included within the trading portfolio if they
have been originated, acquired, or incurred principally for the purpose
of selling or repurchasing in the near term, or they form part of a port-
folio of identified financial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-term
profit-taking.
Included within the trading portfolio are trading securities, trading
loans, trading deposits, securitization liabilities at fair value, obligations
related to securities sold short, and physical commodities, as well as
certain financing-type commodities transactions that are recorded on
the Consolidated Balance Sheet as securities purchased under reverse
repurchase agreements and obligations related to securities sold under
repurchase agreements, respectively.
Trading portfolio assets and liabilities are recognized on a trade date
basis and are accounted for at fair value, with changes in fair value as
well as any gains or losses realized on disposal recognized in trading
income. Physical commodities are measured at fair value less costs to
sell. Transaction costs are expensed as incurred. Dividends are recog-
nized on the ex-dividend date and interest is recognized on an accrual
basis using the effective interest rate method (EIRM). Both dividends
and interest are included in interest income or interest expense.
Designated at Fair Value through Profit or Loss
Certain financial assets and liabilities that do not meet the definition
of trading may be designated at fair value through profit or loss. To
be designated at fair value through profit or loss, financial assets or
liabilities must meet one of the following criteria: (1) the designation
eliminates or significantly reduces a measurement or recognition
inconsistency; (2) a group of financial assets or liabilities, or both, is
managed and its performance is evaluated on a fair value basis in
accordance with a documented risk management or investment strat-
egy; or (3) the instrument contains one or more embedded derivatives
unless a) the embedded derivative does not significantly modify the
cash flows that otherwise would be required by the contract, or b) it is
clear with little or no analysis that separation of the embedded deriva-
tive from the financial instrument is prohibited. In addition, the fair
value through profit or loss designation is available only for those
financial instruments for which a reliable estimate of fair value can be
obtained. Once financial assets and liabilities are designated at fair
value through profit or loss, the designation is irrevocable.
Consolidation conclusions are reassessed at the end of each financial
reporting period. The Bank’s policy is to consider the impact on consol-
idation of all significant changes in circumstances, focusing on the
following:
• Substantive changes in ownership, such as the purchase of more
than an insignificant additional interest or disposal of more than an
insignificant interest in an entity;
• Changes in contractual or governance arrangements of an entity;
• Additional activities undertaken, such as providing a liquidity facility
beyond the terms established originally or entering into a transac-
tion that was not originally contemplated; or
• Changes in the financing structure of an entity.
Investments in Associates and Joint Ventures
Entities over which the Bank has significant influence are associates
and entities over which the Bank has joint control are joint ventures.
Associates and joint ventures are accounted for using the equity
method of accounting. Significant influence is the power to participate
in the financial and operating policy decisions of an investee, but is not
control or joint control over these entities. Investments in associates
and joint ventures are carried on the Consolidated Balance Sheet
initially at cost and increased or decreased to recognize the Bank’s
share of the profit or loss of the associate or joint venture, capital
transactions, including the receipt of any dividends, and write-downs
to reflect impairment in the value of such entities. These increases or
decreases, together with any gains and losses realized on disposition,
are reported on the Consolidated Statement of Income. The Bank’s
equity share in TD Ameritrade’s earnings is reported on a one-month
lag basis. The Bank takes into account changes in the subsequent
period that would significantly affect the results.
At each balance sheet date, the Bank assesses whether there is any
objective evidence that the investment in an associate or joint venture
is impaired. The Bank calculates the amount of impairment as the
difference between the higher of fair value or value-in-use and its
carrying value.
Non-controlling Interests
When the Bank does not own all of the equity of a consolidated entity,
the minority shareholders’ interest is presented on the Consolidated
Balance Sheet as Non controlling interests in subsidiaries as a component
of total equity, separate from the equity of the Bank’s share holders.
The income attributable to the minority interest holders, net of tax,
is presented as a separate line item on the Consolidated Statement
of Income.
CASH AND DUE FROM BANKS
Cash and due from banks consist of cash and amounts due from banks
which are issued by investment grade financial institutions. These
amounts are due on demand or have an original maturity of three
months or less.
REVENUE RECOGNITION
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Bank and the revenue can be reliably
measured. Revenue associated with the rendering of services is recog-
nized by reference to the stage of completion of the transaction at the
end of the reporting period.
Interest from interest-bearing assets and liabilities is recognized as
interest income using the effective interest rate (EIR). EIR is the rate
that discounts expected future cash flows for the expected life of the
financial instrument to its carrying value. The calculation takes into
account the contractual interest rate, along with any fees or incremen-
tal costs that are directly attributable to the instrument and all other
premiums or discounts.