ASSOCIATION OF ALBERTA MUNICIPALITIES

Notes to the Consolidated Financial Statements

Year ended December 31, 2022

1. Significant accounting policies (continued):

(i) Employee future benefits (continued):

ABmunis has entered into a Master Investment Agent Service Agreement with an investment manager to facilitate the delivery of Investment Agent Services for Supplemental Employee Retirement Plans ("MuniSERP"). The plan provides enhanced retirement benefits covering executive employees who cannot, under the Income Tax Act pension limits, accrue a full 2.0% benefit rate on their earnings. The benefit is based on years of service, the employee's final average earnings and a 2.0% benefit rate offset by corresponding LAPP and APEX benefits. ABMunis accrues its obligations under MuniSERP as the employees render the services necessary to earn the retirement benefits.

ABMunis accounts for this employee retirement plan using the immediate recognition method. Under this approach, the accrued benefit obligation at the end of the year is determined based on the most recent actuarial valuation report. The measurement date of the accrued benefit obligation coincides with ABMunis’s fiscal year-end. The most recent actuarial valuation of the accrued benefit obligation was as of December 31, 2022, and the next valuation will be as of December 31, 2023. The obligation is unfunded.

At year-end ABMunis recognizes the accrued benefit obligation in the statement of financial position. Payments made during the course of the year are a reduction to the actuarial obligation. Past service costs arising from plan amendments are immediately recognized into income at the date of the amendment.

(j) Financial instruments:

Financial instruments are recorded at fair value on initial recognition. Investments are subsequently measured at fair value. All other financial instruments are subsequently recorded at cost or amortized cost unless management has elected to carry the instruments at fair value. Management has not elected to carry any such financial instruments at fair value.

Transaction costs incurred including investment management fees on the acquisition of financial instruments measured subsequently at fair value are expensed as incurred. All other financial instruments are adjusted by transaction costs incurred on acquisition and financing costs, which are amortized using the straight-line method.

Financial assets are assessed for impairment on an annual basis. If there is an indicator of impairment, ABmunis determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, and the amount that could be realized from selling the financial asset or the amount ABmunis expects to realize by exercising its right to any collateral. If events and circumstances reverse in a future period, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial carrying value.

(k) Use of estimates:

The preparation of the financial statements in accordance with Part III requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Significant items subject to such estimates and assumptions include the energy purchase accrual and the IBNR liability. Actual results could differ from those estimates.