Learn how Accenture can help you transition to the new with confidence. With a dedicated team of specialists at the ready, we’ll help you transition with ease, at speed and on time. Accenture’s blog offers ideas for developing a CCAR Q4 2020 Remediation Plan. In October 2018, FASB issued Accounting Standards Update (ASU) No. We extend our capabilities through a network of alliances. Impact 3: Evaluating LIBOR exposure and enhancing contractual robustness Banks use LIBOR as a reference rate for pricing and interest modelling across a large volume of cash and derivative contracts. In October 2019, the ARRC published a practical implementation checklist for adopting SOFR. The LIBOR scandal in 2011 raised concerns on the future of LIBOR. Furthermore, the impact exists beyond companies to consumers. Conduct an impact assessment considering all interdependencies and key stakeholders, and develop strong governance to help escalate decision making. ... Impact assessment & project plan Management of transition / implementation Awareness Workshops Insights on industry challenges and regulatory developments Training Sessions Education of key stakeholders on Level 3: LIBOR-specific pattern matching. Accenture surveyed firms cite a lack of clarity from regulators and a lack of understanding across jurisdictions of what is required to transition from LIBOR by 2021. A futuristic, distributed application to manage Asset-backed Coin Offerings. If the hedge's underlying interest reference rate changes, then the hedge may need to be accounted for as a termination. Our approach is active and nimble, as the focus on LIBOR is expected to be uneven on the transition journey to 2021, and firms should be ready to adapt quickly as market dynamics evolve. In the Indian context, the key businesses impacted by LIBOR would include: Capital Markets; Commercial Lending When a choice has been made (and agreed with the client) about an alternative benchmark, both the information captured in bank systems and the underlying legal documentation must be amended. Be the first to know when the JofA publishes breaking news about tax, financial reporting, auditing, or other topics. SOFR's price is based on borrowing rates for overnight U.S. Treasury repurchase agreements, or repos. Transition your business and contracts to new rates while maintaining operational readiness. The repo market is influenced by the concentration of large banks in the market. Our risk assessment monitoring frameworks help our clients analyze the timings and impacts of different regulatory guidelines. Thus, contracts incorporating interest reference rates may use other rates. Standard setters, too, are involved. By using the site, you consent to the placement of these cookies. Our framework can help define both internal and external communications plans, alongside a client outreach strategy for the transition process. LIBOR was established as the average interest rate at which institutions lend to one another and has been used as a benchmark for everything from interest rate swaps to consumer mortgages, commercial lending, and business loans. If the LIBOR replacement made the hedge occurrence less probable, this too could discontinue hedge accounting. A Valuation Model calculates current and historical NPV of contracts to demonstrate how a valuation might change when it uses an alternate risk-free rate. These transactions underpin nearly USD$200 trillion in outstanding volumes of USD LIBOR contracts. The checklist applies to all public and private companies. Structured data can be filtered and sorted by demand, showing how contract or portfolio level valuations might change as alternate risk-free rates are used in models. Our framework assesses all aspects of the transition process, from products and financials to communications planning and operating models. Center for Plain English Accounting reports. Under certain conditions, FASB considers changes in a contract's interest reference rate a contract continuation. This realization caused many to question LIBOR as a reliable interest rate benchmark. The primary issue is whether the existing debt is extinguished, and the post-term-adjusted debt is considered distinct from the pre-term-adjusted debt. ASC Topic 815, Derivatives and Hedging, requires discontinuing hedge accounting for terminated hedges, and a benchmark interest rate change could terminate the hedge. LIBOR is published daily and is calculated from hypothetical borrowing transactions submitted by a few banks. By effectively assessing and prioritizing key decisions and building a solid strategy for implementation, we can guide you through a smooth operational transition. We interviewed 177 firms across financial services and corporate industries about their LIBOR preparedness. Because the transactions are hypothetical (not market-based) and may have few submissions (not an active market), LIBOR is not fully supported by an active market of observable transactions by market participants. Senior Managing Director – Strategy & Consulting, Managing Director – Strategy & Consulting, Principal Director – Strategy & Consulting, Managing Director – Strategy & Consulting, Client Lead. Financial firms can consider methods for assessing and amending contracts using a rules engine and technology tools. As the 2021 deadline for switching off LIBOR approaches, transitioning to risk-free rates (RFR) represents a critical, complex challenge for financial institutions. This relief application would be optional on a hedge-by-hedge basis. ASU 2020-04 will temporarily ease accounting for and recognizing the effects of interest-reference-rate reform on contracts and hedging relationships. This site uses cookies to store information on your computer. LIBOR) and data attributes contained in a contract and to return those results in a structured form. Deal with the unknown by getting to know it. The Accelerator uses three levels of Inbuilt NLP Models to understand language and patterns and uses reinforced learning to remove outliers over time. Financial institutions and other industries globally are working to replace the London Interbank Offered Rate (LIBOR). The shift away from the most widely used interest rate benchmarks is an immense change to global finance that will have far-reaching impacts. An experienced and dedicated team of global LIBOR specialist to help orchestrate your transition. Manufacturers and other nonfinancial companies need to pay attention and address this issue. In 2017 in the United States, the Alternative Reference Rates Committee (ARRC), convened by the Federal Reserve Board, officially endorsed the Secured Overnight Financing Rate (SOFR) as the preferred benchmark interest reference rate replacing LIBOR. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, issued on March 12, 2020. Dig deeper and explore specific LIBOR implications, challenges and solutions. Our skilled, dedicated global team can help you build actionable solutions to transition as smoothly as possible. ASC Subtopic 470-50, Debt Modifications and Extinguishments, provides this guidance. The guidance also permits preparers to preserve their organizations' hedge accounting when updating hedging strategies in response to reference-rate reform when contracts reference LIBOR or another rate that is being discontinued as a result of reference-rate reform. We’re gathering the latest news stories along with relevant columns, tips, podcasts, and videos on this page, along with curated items from our archives to help with uncertainty and disruption. We’ve developed metadata frameworks to help identify the key data elements requiring remediation to facilitate the LIBOR transition. Our suite of tools and capabilities are the key to helping you plan your LIBOR transition. Publication of the London Interbank Offered Rate (LIBOR) will cease after 2021. Operating management will need to understand the differences between LIBOR and SOFR (or other benchmark interest rates) as well as how this affects contract negotiations and interest cost calculation. Since these alternative rates published, a concentrated number of the world’s largest banks have traded futures based on these new benchmarks, supported by institutions such as the Intercontinental Exchange (ICE), London Clearinghouse (LCH), and the CME Group. Our comprehensive and industry-tested playbook can provide the solutions to help you transition from LIBOR with confidence. An interest-reference-rate change may affect interest rate hedges. We’ve developed a flagship program management application that leverages AI infused automation to manage LIBOR program dependencies. There may be other business consequences from discontinuing LIBOR, such as to strategy, products, processes, and information systems. The Accelerator combines a powerful combination of Optical Character Recognition and Natural Language Processing to identify any reference to specific benchmarks (e.g. For more information, go to aicpa.org. WHAT NONFINANCIAL COMPANIES SHOULD BE DOING NOW, FASB Provides Accounting Relief for LIBOR Transition, IASB, GASB Address Interbank-Offered Rate Phaseout, FASB Approves Guidance to Assist in Reference Rate Transition, FASB Proposes Guidance to Ease Transition to New Benchmark Rates, National Conference on Banks and Savings Institutions, The End of LIBOR — Part I: Potential Costly Surprises and Related Accounting Matters, The End of LIBOR — Part II: Potential Costly Surprises and Related Accounting Matters, Keeping you informed and prepared amid the coronavirus crisis. Read our blog posts for the latest insights on what replacing the LIBOR rate could mean for your business. At Accenture, what sets us apart is our ability to implement a LIBOR transition that has you covered from end-to-end. There is already a separate, active Accenture Careers account with the same email address as your LinkedIn account email address. Get a detailed view of the LIBOR Transition Plan. 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. We have helped a number of firms establish their LIBOR Transition programme and mobilise workstreams Monitoring the transition plan and updating/revising the impact assessments, including regulatory Planning, ongoing engagement and coordination with head office PMO & Impact Assessment Business strategy and execution in By the end of 2021, LIBOR is expected to be phased out, which necessitates adopting a new interest reference rate, not just for new loan agreements but also for existing loans. In contrast, SOFR is … Creating a streamlined, seamless customer experience, A data-driven approach to enhance quantity and quality of prospects, Real-time and Intelligent solutions to product suitability, Insightful and dynamic analysis of feeds and pricing, Conversational UI powered, fully integrated relationship management experience, Enhanced transparency and insights on portfolio performance, A Gamified, Personalized, VR Simulated Investment Experience, DIGITAL / BUSINESS CONSULTING / TECHNOLOGY, / Asset Tokenization Part 1 - The WealthTech Tokenized Assets Management Accelerator, / Asset Tokenization Part 2 - Asset-backed Coin Offerings. Large banks act as intermediaries between the Federal Reserve and smaller financial institutions. The accounting is different for each. If a hedged item's underlying interest reference rate changes, then the hedge may become ineffective, which could change the accounting. Agility and scalability are enhanced via the Cloud.