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 & Other Reference Rates
– The basics
– What caused the change?
– Benchmark rates
– Comparison of USD LIBOR to
90-day average SOFR -
FASB—ASU 2020-04
– Impacted agreements
– Reference Rate Reform (Topic
848)
– Contract modification relief
– Hedge accounting relief
– Alternative Reform Rates (ARR)
– US dollar
– British pound
– Euro
– Swiss franc
– Japanese yen
– SOFR market adoption across:
– Futures
– Swaps
– Cash issuances
– Other interest rate derivatives
– Operational impacts of
transitioning from LIBOR -
ARCC Recommended Best Practices
– Impact of COVID-19 on
transition timing
– Controls (entry level, business
process, ITGC)
– Operational impacts
– Governance structure
– Processes and controls
– Updates to IT systems
– Industry progress
– Market liquidity
– Unknowns
– Bank/finance co. perspective
– Preparing for transition
– Regulatory (ISDA protocol,
fallback language)
– Accounting (ASC 848,
disclosures and exemptions)
– Operational (economic impact,
feasibility)
– Contract modification - 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