INDEPENDENT AUDITORS’ REPORT To the Shareholders of Canadian Western Bank
We have audited the consolidated financial statements of Canadian Western Bank (the Entity), which comprise:
• the consolidated balance sheets as at October 31, 2022 and October 31, 2021 • the consolidated statements of income for the years then ended
• the consolidated statements of comprehensive income for the years then ended • the consolidated statements of changes in equity for the years then ended • the consolidated statements of cash flows for the years then ended • and notes to the consolidated financial statements, including a summary of significant accounting policies
(Her einafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at October 31, 2022 and October 31, 2021, and its consolidated financial performance, and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
BASIS FOR OPINION
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements ” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended October 31, 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report.
ASSESSMENT OF THE ALLOWANCE FOR CREDIT LOSSES FOR LOANS Description of the matter
We draw attention to Notes 2 and 7 to the financial statements. The Entity’s allowance for credit losses (ACL) for loans is $ 161,818 thousand as at October 31, 2022. The Entity’s ACL is determined using an expected credit loss (ECL) approach that represents the discounted probability -weighted estimate of cash shortfalls expected to result from defaults over the relevant time horizon. ECL estimations are a function of the probability of default (PD), loss given default (LGD) and exposure at default (EAD).
In establishing the ACL, the Entity ’s approach incorporates a number of underlying assumptions which involve a high degree of management judgment:
• Internal risk ratings attributable to a borrower reflecting changes in credit quality • Estimated realizable amount of future cash flows on Stage 3 loans
• Thresholds used to determine when a borrower has experienced a significant increase in credit risk • Forward-looking information, specifically related to variables to which the ECL models are calibrated
Qualitative adjustments based on expert credit judgment are also incorporated to capture emerging market conditions.
Why the matter is a key audit matter We identified the assessment of the ACL for loans as a key audit matter. Significant auditor judgment was required because of the significant management judgments described above in determining the ACL, which is subject to a high degree of measurement uncertainty. Significant auditor effort and specialized skills and knowledge were required to asses s the Entity’s ACL methodology.
How the matter was addressed in the audit The following were the primary procedures we performed to address this key audit matter.
We evaluated the design and tested the operating effectiveness of certain controls over the Entity’s ACL process, including c ontrols related to:
• Assignment at origination and periodic assessment of internal risk ratings • Monitoring and reporting of delinquencies • Monitoring and approval of forward-looking information incorporated into ECL models • Monitoring of security underlying Stage 3 loans, determination of the estimated realizable amount of future cash flows, and the approval of corresponding ACL
CWB Financial Group 2022 Annual Report | 63
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