The upcoming phase-out of the London Inter-bank Offered Rate (LIBOR) in favor of alternative reference rates will lead to extensive changes in global finance. LIBOR is used extensively in the US and global markets as a reference interest rate in a broad range of financial instruments and commercial agreements, but banks that report the information used to set this rate will no longer be required to do so after 2021. Regulators in various jurisdictions have been working to replace LIBOR and other interbank-offered rates with reference interest rates that are more firmly based on actual transactions from liquid markets.
This timely self-study webinar will explore how countless contracts—such as derivative contracts and variable rate debt agreements—will need to be modified as a result of the transition. You will also learn about accounting changes that could be costly and burdensome, and which could have significant effects on financial reporting, including increased earnings volatility.
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Transition from LIBOR—the Basics
– Who does LIBOR replacement affect and how?
– Governance structure
– Processes and controls
– Updates to IT systems
– Industry progress
– Market liquidity
– Unknowns
– SOFR term structure
– Transition timing -
ARCC Recommended Best Practices
– Regulatory
– Accounting
– Operational -
FASB—ASU 2020-04
– Contract modification to replace
LIBOR
– Which contracts should be
analyzed?
– Proposed accounting standard
update—Reference Rate
Reform (Topic 848)
– Criteria for relief from
modification accounting
– Relief from certain hedge
accounting requirements
– One-time transfer from held
to maturity
– Expected impact of adoption
of ASU
– Processes and controls
– Updates to IT systems -
IASB Approach & Changes
– Key reliefs related to:
– Risk components
– “Highly probable” requirement
– Prospective assessments
– IAS 39 retrospective
effectiveness test
– Recycling of cash flow
hedging reserve
– Scope of amendments - Disclosure Examples—How Are Companies Reflecting Reference Rate Reform?
• Recognize the significance of the role of LIBOR prior to calls for reform
• Identify the nature of the LIBOR scandal
• Recognize operational impacts of transitioning from LIBOR
• Recognize the potential risks in failure to act on the LIBOR transition in a timely manner
• Identify the criteria for qualifying for the optional expedients for contract modifications under ASU 2020-04
• Recognize the hedge accounting relief provided within ASU 2020-04
