On November 1, 2021, we adopted Phase 2 amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16. The Phase 2 amendments focus on accounting and disclosure matters that will arise once an existing benchmark is replaced with an alternative benchmark rate. The amendments were applied retrospectively, and had no impact on our opening shareholders’ equit y upon adoption. Phase 2 amendments provide practical expedients if contract modifications result directly from IBOR reform and occur on an economic equivalent basis. In these cases, changes to the interest rate of the financial assets or liabilities that are required by IBOR reform may be accounted for by updating the effective interest rate prospectively, to reflect the change in the interest rate benchmark rather than being recognized as an immediate gain or loss. Any other changes to the basis for determining contractual cash flows are determined in accordance with our existing accounting policies for loan modifications as described in Note 2 of the audited consolidated financial statements. Phase 2 amendments also allow for a temporary relief from hedge accounting requirements under IAS 39. Changes in existing hedge relationships that are a direct result of IBOR reform may be reflected in the hedge documentation without the need to discontinue the hedging relationship. For aspects of hedge accounting not covered by the amendments and hedges that are not directly impacted by IBOR reform, the accounting policies as described in Note 10 of the audited consolidated financial statements continue to apply. As IBORs are widely referenced, the transition presents a number of risks to us and the industry as a whole. These risks, such as increased volatility, lack of liquidity and uneven fallback practices, may impact market participants. In addition to these inherent risks, we are exposed to operational risk arising from the renegotiation of contracts and readiness to issue and trade products referencing alternative reference rates. Our cross functional IBOR Reform working group continues to coordinate an orderly transition to alternative reference rates. During the year, we completed the remediation of our USD LIBOR referenced contracts by incorporating appropriate fallback language or by replacing the referenced rates with the Secured Overnight Financing Rate (SOFR), with appropriate spread adjustments. We also ceased the issuance of new USD LIBOR products at the end of calendar 2021. In 2022, the working group incorporated CDOR transition into our plans, which include incorporating appropriate contract fallback language, supporting the introduction of new products referencing CORRA or other alternative rates post-transition, preparing to cease the issuance of CDOR-based financial instruments, transitioning legacy CDOR-based contracts and preparing for overall operational readiness. The working group monitors recommendations from industry groups and regulatory bodies, and engages with industry associations and counterparties regarding transition of CDOR to CORRA as we update our transition plans. The working group provides periodic updates to senior management and the Asset and Liability Committee and quarterly to the Audit Committee of the Board of Directors regarding the status of transition plans for migrating our CDOR and USD LIBOR products and upgrading systems and processes.
FUTURE CHANGES IN ACCOUNTING POLICIES
A number of standards and amendments have been issued by the IASB, and the following changes may have an impact on our future financial statements.
IFRS 12 INCOME TAXES In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction ( Amendments to IAS 12 Income Taxes). The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, there is recognition of a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. CWB will adopt the amendments effective for our fiscal year beginning November 1, 2022. We have assessed the amendment and determined that there will be no significant impact upon adoption. IFRS 17 INSURANCE CONTRACTS In May 2017, the IASB issued IFRS 17 Insurance Contracts which will replace IFRS 4 Insurance Contracts. In June 2020, the IASB issued amendments to IFRS 17 aimed at helping companies implement the Standard and to defer the effective date. In December 2021, the IASB issued a narrow-scope amendment to the transition requirements in IFRS 17, providing insurers with an option aimed at improving the usefulness of information to investors on initial application of IFRS 17 by presenting comparative information about financial assets, using a classification overlay approach on a basis that is more consistent with how IFRS 9 will be applied in future reporting periods. This Standard introduces consistent accounting for all insurance contracts. The Standard requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. Additionally, IFRS 17 requires an entity to recognize profits as it delivers insurance services, rather than when it receives premiums.
The new Standard and its amendments are effective for our fiscal year beginning November 1, 2024 and we are assessing the potential impacts on our consolidated financial statements.
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