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CONSOLIDATED FINANCIAL STATEMENTS <br />Management's Responsibility for Financial Information <br />The management of The Bank of Nova Scotia (the Bank) is respon- <br />sible for the integrity and fair presentation of the financial informa- <br />tion contained in this Annual Report. The consolidated financial <br />statements have been prepared in accordance with Canadian <br />generally accepted accounting principles. The consolidated financial <br />statements also comply with the accounting requirements of the <br />Bank Act. <br />The consolidated financial statements, where necessary, include <br />amounts which are based on the best estimates and judgement of <br />management. Financial information presented elsewhere in this <br />Annual Report is consistent with that shown in the consolidated <br />financial statements. <br />Management has always recognized the importance of the Bank <br />maintaining and reinforcing the highest possible standards of <br />conduct in all of its actions, including the preparation and dissemi- <br />nation of statements fairly presenting the financial condition of the <br />Bank. In this regard, management has developed and maintains a <br />system of accounting and reporting which provides for the neces- <br />sary internal controls to ensure that transactions are properly <br />authorized and recorded, assets are safeguarded against unautho- <br />rized use or disposition, and liabilities are recognized. The system is <br />augmented by written policies and procedures, the careful selection <br />and training of qualified staff, the establishment of organizational <br />structures providing an appropriate and well-defined division of <br />responsibilities, and the communication of policies and guidelines of <br />business conduct throughout the Bank. <br />Management, under the supervision of and the participation of <br />the Chief Executive Officer and the Chief Financial Officer, have a <br />process in place to evaluate disclosure controls and procedures and <br />internal control over financial reporting in line with Canadian and <br />U.S. securities regulations. <br />The system of internal controls is further supported by a profes- <br />sional staff of internal auditors who conduct periodic audits of all <br />Rick Waugh <br />President and Chief Executive Officer <br />Toronto, Canada <br />December 6, 2007 <br />aspects of the Bank's operations. As well, the Bank's Chief Auditor <br />has full and free access to, and meets periodically with, the Audit <br />and Conduct Review Committee of the Board of Directors. In <br />addition, the Bank's compliance function maintains policies, proce- <br />dures and programs directed at ensuring compliance with regulatory <br />requirements, including conflict of interest rules. <br />The Office of the Superintendent of Financial Institutions, <br />Canada, which is mandated to protect the rights and interests of <br />the depositors and creditors of the Bank, examines and enquires <br />into the business and affairs of the Bank, as deemed necessary, to <br />determine whether the provisions of the Bank Act are being <br />complied with, and that the Bank is in a sound financial condition. <br />The Audit and Conduct Review Committee, composed entirely <br />of outside directors, reviews the consolidated financial statements <br />with both management and the independent auditors before such <br />statements are approved by the Board of Directors and submitted to <br />the shareholders of the Bank. <br />The Audit and Conduct Review Committee reviews and reports <br />their findings to the Board of Directors on all related party transac- <br />tions that may have a material impact on the Bank. <br />KPMG LLP, the independent auditors appointed by the share- <br />holders of the Bank, have audited the 2007 and 2006 consolidated <br />financial statements of the Bank in accordance with Canadian gener- <br />ally accepted auditing standards and the standards of the Public <br />Company Accounting Oversight Board (United States) and have <br />expressed their opinions upon completion of such audits in the <br />following report to the shareholders. The Shareholders' Auditors <br />have full and free access to, and meet periodically with, the Audit <br />and Conduct Review Committee to discuss their audit, including <br />any findings as to the integrity of the Bank's accounting, financial <br />reporting and related matters. <br />Luc Vanneste <br />Executive Vice-President <br />and Chief Financial Officer <br />94 2007 SCOTIABANK ANNUAL REPORT <br />