INDEPENDENT AUDITOR ’ S REPORT To the Shareholders of Canadian Western Bank
OPINION
We have audited the consolidated financial statements of Canadian Western Bank (the Entity), which comprise:
• the consolidated balance sheets as at October 31, 2023 and October 31, 2022 • 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
(Hereinafter 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, 2023 and October 31, 2022, and its consolidated financial performance, and its consolidated cash flows for the years then ended in accordance with IFRS Accounting Standards (IFRS) as issued by the International Accounting Standards Board.
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 “Auditor’ s Responsibilities for the Audit of the Financial Statements ” section of our auditor’ s 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, 2023. 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 auditor ’ s report.
ASSESSMENT OF THE ALLOWANCE FOR CREDIT LOSSES FOR PERFORMING LOANS Description of the matter
We draw attention to Notes 2 and 6 to the financial statements. The Entity’s allowance for credit losses for performing loans (ACL) is $129,364 thousand as at October 31, 2023. 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 the borrower’s credit quality, including any changes since the inception of the loan • 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, and construction of the scenarios and their weights
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 performing 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 apply audit procedures and evaluate the results of those procedures.
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 with the inv olvement of credit risk and economics professionals with specialized skills and knowledge. This included controls related to:
• Monitoring and validation of models used to derive PD, LGD and EAD • Monitoring and validation of the methodology for identifying whether there has been a significant increase in credit risk • Assignment at origination and periodic assessment of internal risk ratings • Monitoring and approval of forward-looking information including scenario weightings incorporated into ECL models
We involved credit risk and economics professionals with specialized skills and knowledge who assisted in:
CWB Financial Group 2023 Annual Report | 61
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