CWBFG Annual Report 2022

H) PROVISIONS AND CONTINGENT LIABILITIES Management exercises judgment in determining whether a past event or transaction may result in the recognition of a provision or the disclosure of a contingent liability. Provisions are recognized in the consolidated financial statements when management determines that it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated, considering all relevant risks and uncertainties. Management as well as internal and external experts may be involved in estimating any amounts required. The actual costs of resolving these obligations may be significantly higher or lower than the recognized provision. I) SPECIFIC ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except as noted. To facilitate a better understanding of our consolidated financial statements, the significant accounting policies are disclosed in the notes, where applicable, with related financial disclosures by major caption:





2 3 4 5 6 7 8 9

Financial instruments

16 17 18 19 20 21 22 23 24 25 26 27 28 29

Share-based payments

Cash resources

Contingent liabilities and commitments


Other income and other expenses

Securities sold under repurchase agreements and purchased under resale agreements Loans, impaired loans and allowance for credit losses Financial assets transferred but not derecognized

Income taxes Earnings per common share Related party transactions

Interest rate sensitivity

Property and equipment

Interest income

Goodwill and intangible assets Derivative financial instruments

Fair value of financial instruments Financial instruments - offsetting

10 11 12 13 14 15

Other assets

Risk management


Capital management

Other liabilities



Comparative figures

Capital stock

J) CHANGES IN ACCOUNTING POLICIES Interest Rate Benchmark Reform

Various interest rates and other indices that are deemed to be benchmarks, including the London Interbank Offered Rate (LIBOR), have been the subject of international regulatory guidance and proposals for reform. Regulators in various jurisdictions have advocated for the transition from Interbank Offered Rates (IBORs) to alternative benchmark rates, based upon risk-free rates informed by actual market transactions. In March 2021, the Financial Conduct Authority confirmed that most USD LIBOR tenors will cease to be provided beginning June 30, 2023. In December 2021, the Canadian Alternative Reference Rate working group (CARR) recommended to CDOR’s administrator that the C anadian Dollar Offered Rate (CDOR) should also cease calculation and publication. On May 16, 2022, the CDOR administrator, Refinitiv Benchmark Services (UK) Limited (Refinitiv), announced the cessation of CDOR by June 28, 2024, consistent with CARR’s recommendations. CARR has proposed a two -stage plan for the adoption of Canadian Overnight Repo Rate Average (CORRA) as the replacement benchmark rate and has announced it will develop a one- and three-month Term CORRA benchmark which is expected to be published late in the third calendar quarter of 2023. OSFI also announced that it expects all new derivative contracts and securities to transition to alternative rates by June 30, 2023, with no new CDOR exposure being booked after that date, with limited permitted exceptions. OSFI also expects loans referencing CDOR to transition by June 28, 2024, and financial institutions to prioritize system and model updates to accommodate the use of CORRA prior to June 28, 2024. In response to interest rate benchmark reform, the IASB issued two phases of amendments to accounting standards. We adopted Phase 1 amendments to hedge accounting requirements in IFRS 9 Financial Instruments (IFRS 9), IAS 39 Financial Instruments: Recognition and Measurement (IAS 39), IFRS 7 Financial Instruments: Disclosures (IFRS 7) and IFRS 16 Leases (IFRS 16) on November 1, 2020. These amendments apply until IBOR-based cash flows transition to new risk-free rates or when the applicable hedging relationships are discontinued. 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’ equ ity 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 these 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 these 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.

72 | CWB Financial Group 2022 Annual Report

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