The Role of Internal Audit in a LIBOR Transition

Don’t get left in the
dark when LIBOR is
switched off
The Role of
Internal Audit in a
LIBOR Transition

CONTENTS
Copyright © 2020 Accenture. All rights reserved. 2
1.LIBOR Transition and Internal Audit
2.How We Can Help
3. Appendix

LIBOR TRANSITION
AND INTERNAL
AUDIT

LIBOR TRANSITION: THE ROLE OF INTERNAL AUDIT
 Have a strong supporting role in
helping the organization to navigate
the risks associated with moving
away from LIBOR
 Challenge management about
whether they are aware that LIBOR is
disappearing
 Challenge management regarding
awareness of the impact this could
have on the business
 Ask whether management has a plan
Challenge
• Have a strong role supporting the organization in navigating risks associated with the LIBOR Transition
• “Challenge management to adopt appropriate policies, procedures and effective controls”3 across the processes
and technology impacted by the LIBOR transition
• Internal Audit should evaluate management’s progress in adopting a new benchmark rate by the 2021 deadline
Assess Risk
• Internal Audit should be engaged in the risk assessment and LIBOR transition process from the start to assess
whether an appropriate LIBOR transition plan is established
• Engage executives and non-executives early to accept accountability and ownership for mitigating potential risks
• Engage and collaborate with management on mitigating LIBOR transition risks
Align Risk
• Collaborate with second line functions such as Compliance and Legal regarding key risks related to the LIBOR
transition, as well as, governance structures and control activities to mitigate risk exposure
• Assess department and company skill sets to confirm that the LIBOR Transition Team has appropriate resources
• The LIBOR reform may expose the company to important risks and Internal Audit should effectively identify and
assess these
According to the Federal Reserve in their Supplemental Policy Statement on the Internal Audit function, “The guidance set forth in this section (Internal Audit Function) supplements the existing guidance in
the 2003 Policy Statement by strongly encouraging internal auditors to adhere to professional standards, such as the IIA Guidance.”4
1. “Goodbye LIBOR – what the end of the interbank lending rate means for you,” Chartered Institute of Internal Auditors. Access at: https://www.iia.org.uk/audit-risk-magazine/features/goodbye-libor-what-the-end-of-the-
interbank-lending-rate-means-for-you/
2. “Supplemental Policy Statement on the Internal Audit Function and Its Outsourcing,” Board of Governors of the Federal Reserve System, January 23, 2013. Access at:
https://www.federalreserve.gov/supervisionreg/srletters/sr1301a1.pdf
3. Ibid.
4. Ibid.
As outlined by the Institute of Internal Auditors (IIA)1 and the Federal Reserve System2

LIBOR TRANSITION: KEY DRIVERS
Governance
• Skills Assessment and Training
• Policies and Procedures
• Risk Assessment
Cross Functional Approach
• Program Governance Review
• Review and Assess
• Post-Implementation Audit and Monitoring
Execution
• Updated Audit Plan
• Audit Committee / Senior Executive Team Reporting
To evaluate management’s transition approach, assess risk, and align with other second line functions, Internal Audit should
enhance its governance and execution capabilities while establishing an audit strategy that aligns with the IIA guidance
Copyright © 2020 Accenture. All rights reserved.
Source: “Goodbye LIBOR – what the end of the interbank lending rate means for you,” Chartered Institute of Internal Auditors. Access at: https://www.iia.org.uk/audit-risk-
magazine/features/goodbye-libor-what-the-end-of-the-interbank-lending-rate-means-for-you/

LIBOR TRANSITION: INTERNAL AUDIT
CROSS-FUNCTIONAL APPROACH
Conduct Program Assessment of the LIBOR transition across Governance, In-Process Transition
activities to Post-Implementation
As per the Federal Reserve’s Supervisory Standards, “Internal audit should challenge management to adopt appropriate policies and procedures and effective controls. If policies, procedures, and internal controls are ineffective or insufficient in a
particular line of business or activity, internal audit should report specific deficiencies to senior management and the audit committee …” (emphasis ours). Access at: https://www.federalreserve.gov/supervisionreg/srletters/sr1301a1.pdf.
Program Governance Review Review and Challenge Post-Implementation Audit Monitoring
Assess the establishment of a well-controlled transition Review and assess real-time progress
Review and verify a well-controlled transition
post-implementation
Assess (Governance):
 Establishment of a risk and governance framework to
govern the transition
 Identification of accountability and ownership
 Organizational structure, committees, and forums that
oversee the transition
Assess (Process)
 Alignment of LIBOR Transition Plan with regulatory
guidelines and industry preferred practices to keep pace
with the transition milestones and timelines outlined in the
ARRC Paced Transition Plan
 Definition of milestones, KPIs and KRIs to track the
transition
 Identification of relevant LIBOR referenced products
 Identification of “fallback language” codicils
 Identification of clients and transactions impacted
 Establishment of targeted communications
Review and Assess:
 New LOB processes, procedures and controls
 Tracking of progress and deliverables across
transition workstreams using project governance
and MI reporting (e.g. new product launches,
trading strategies)
 Client outreach and bilateral contract negotiations
 Contract remediation
 Litigation risk tracking
 Infrastructure design, valuation risk model calibration
Review and Verify:
 Implementation of LIBOR transition in accordance
with plan and regulatory requirements
 Transition of risk and governance framework into
BAU
 Analysis of metrics such as limit breaches and
complaints received to assess the effectiveness of the
BAU process
 Continued legal and compliance monitoring controls
 Continued regulatory horizon scanning
 Monitoring of discontinuation risks such as monitoring
controls over performance of new models
 Lessons learned have been appropriately captured,
and used to enhance the governance and risk
framework, and existing controls adjusted and new
controls embedded
Internal Audit Cross-Functional Assessment Activities
Please see Legend for acronyms

LIBOR TRANSITION: INTERNAL AUDIT GOVERNANCE
Internal Audit Governance
Update risk profiles and end-to-end capabilities
People
 Perform skills assessment to identify existing capabilities and areas where additional expertise, resources, and training are
needed
 Update training program to address gaps identified in skills assessment
Policies and Procedures
 Update audit policies and procedures to include methodology for:
 LIBOR transition within any governance audits
 Real-time review and challenge of changes to processes and controls
 Post-implementation LIBOR audit
 Consider updates to reporting standards based on LIBOR audit activities
Risk Assessment
 Dynamically update risk assessment results to reflect impacts throughout LIBOR implementation
 Continuously update annual plan to reflect changes in the risk and controls environment
 Update individual audit scopes based on ongoing changes to risk assessment and annual plan
Internal Audit departments are enhancing their end-to-end capabilities, as part of their 3rd Line of
Defense oversight role during their company’s LIBOR transition life cycle
Source: “Practical Implementation Checklist for SOFR Adoption,” Alternative Reference Rates Committee, September, 2019. Access
at:https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/ARRC-SOFR-Checklist-20190919.pdf

LIBOR TRANSITION: INTERNAL AUDIT PLAN
EXECUTION
Internal Audit Plan Execution
Update risk profiles and Internal Audit Plan
Audit Testing In-Process
 Leverage subject matter knowledge (e.g., LIBOR regulatory compliance, risk management, finance, technology) to update
individual audit testing plans for LIBOR-related changes to processes and controls
 Perform testing of updated LIBOR controls using a risk-based approach
 Leverage Agile automated test scripts to increase level of assurance and efficiency across new or changed LIBOR processes
 Document detailed results of LIBOR controls testing including:
 Issue identification
 Analysis of cross-functional impact on rating rationale
 Root cause analysis
 Conduct internal Quality Control review to provide appropriate LIBOR related controls testing and documentation
Audit Committee / Senior Executive Team Reporting
 Report Internal Audit view on status of transition
 Report Internal Audit view on effectiveness of Program progress including any deficiencies identified
 Monitor external engagement strategy (i.e. Regulators)
Internal Audit departments are updating their Audit Plan as part of their 3rd Line of Defense oversight
role during their company’s LIBOR transition life cycle
Source: “Practical Implementation Checklist for SOFR Adoption,” Alternative Reference Rates Committee, September, 2019. Access
at:https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/ARRC-SOFR-Checklist-20190919.pdf

GETTING STARTED
Key foundational activities are necessary to provide effective audit coverage of LIBOR transition risks which can
highlight critical improvements throughout the effort
Skills Assessment and Resource Needs
Short-Term Value
• Identify resource and skill capabilities to
provide downstream audit activities
Next Steps
• Identify LOB / corporate function audit leaders
• Define assessment framework and required
LIBOR specific skills
Training
Short-Term Value
• Fill skill gaps by up-skilling existing resources
to execute LIBOR audit activities
Next Steps
• Assess if training capabilities exist in-house or
if leveraging external resources could provide a
more efficient approach to comprehensive
program delivery
LIBOR Audit Strategy
Short-Term Value
• Inform resourcing needs for cross-functional
execution
Next Steps
• Participate in firm’s committee meetings to
understand the strategy and timeline
• Update risk assessment to reflect LIBOR-
specific risks
• Develop enterprise-wide plan for audit
coverage
Firm Status Project Plan
Short-Term Value
• Critical to the development of the audit plan
and timeline
Next Steps
• Set up cadence with management to
understand their evolving timeline and project
plan
• Establish audit dashboard based on
management’s project plan
Dashboard Reporting
Short-Term Value
• Provide transparency into audit activities,
audit’s view of management’s status, and to
facilitate improvements throughout the LIBOR
transition
Next Steps
• Liaise with other second line functions to
understand reporting currently in place
• Identify gaps in existing reporting practices and
update audit reporting practices

ACCENTURE DIFFERENTIATORS: REPRESENTATIVE
ASSETS AND ACCELERATORS
Our assets reflect Accenture’s deep LIBOR subject matter knowledge and audit experience and can help to accelerate
delivery
Accelerator Short Term Initiative
Framework outlining complete set of necessary skills for LIBOR audit execution and facilitating the evaluation
of current resource capabilities, and identification of gaps which should be addressed.
Skills Assessment and
Resource Needs
Modularized training on industry LIBOR activities and related risks, tailored to highlight key focus areas
most relevant to each impacted LOB.
Training
RACI matrix (Responsible, Accountable, Consulted, and Informed) and summary roles and responsibilities for
audit mobilization and execution.
LIBOR Audit Strategy
Dashboard template for tracking management’s progress and timeline for audit activities. Firm Status Project Plan
Dashboard template, split by LOB, for reporting audit’s view of management’s progress with LIBOR transition
and any identified areas requiring remediation.
Dashboard Reporting
Testing factory set up to support plan development and execution across business process, and technology
changes. Intelligent automation tools to support data / evidence gathering and automation of control testing.
LIBOR Audit Strategy and
Execution
Audit
Dashboard
Audit Programs
in a Box
Dashboard Reporting
LIBOR Training
Materials
Skills and Resource
Assessment
Framework
Audit Operating
Model

12Copyright © 2020 Accenture. All rights reserved.
LIBOR TRANSITION CAPABILITY BLUEPRINT
01. Impact Assessment
& LIBOR Program
Structure Data & Analytics
3.2 Infrastructure Changes
to Ops and Tech
2.2 Detailed Business
Changes
2.1 Transition
Strategy
3.1 Transition Execution
Transition Toolkit
Operational Readiness
Operational Checklist
LIBOR Training
Client Outreach & Communications
Client Outreach & Readiness
Transition Program Planning
Communication Planning
Transition Strategy Transition Analytics & Reporting
Scenario Monitoring
Risk Assessment Monitoring
Contract Remediation
Contract Analysis
Contract Negotiation & Repapering
Infrastructure Playbook
Release Planning and Execution
Technology Planning Technology Remediation and Release Management
Testing & QA
Assurance
Factory
Data Remediation
Data Remediation
Product Lifecycle Factory
Policy and Procedure Factory
New Rate Product Infrastructure Risk, Finance, Treasury, & Audit Infrastructure
Model Update Factory
Risk ServicesTreasury Services
Program Excellence Factory
Transition Office
Impact Assessment Toolkit
Impact Assessment
Core Services
Audit Playbook
IBOR Transition Command Center Toolkit
Product Transition Matrix
Legend
BRD: Business Requirement Document
QA: Quality Assurance
Skills Assets Technology
As each firm’s transition journey depends upon its product, client and geographic mix, this blueprint
can accommodate further tailoring to support an effective transition

ACCENTURE’S AUDIT CAPABILITIES AND SERVICES
Accenture’s audit-trained team employs a practitioner mindset, deep subject area knowledge and experience, and
innovation leadership to help companies effectively and confidently transition from LIBOR
Program Governance Review
• Assess risk and governance framework
• Review of transition plan against
regulatory guidelines, industry
standards and transition milestones
Review and Impartial Assessment of
Milestone Completion
• Real-time review and impartial
assessment of progress against
established milestones
• Review of deliverables as they are
completed
Business and Technology Internal
Audit Test Plan Development
• Make updates to risk profile and audit
plan
• Incorporate changes to processes
and controls into ongoing internal
audit testing plans
Business and Technology Internal
Audit Testing
• Testing factory set up to support sting
plan development and execution across
business process, data analytics and
technology changes
• Intelligent automation tools to support
data / evidence gathering and control
testing
• Artificial intelligence for reporting
results and generating workpapers
Post Implementation Review
• Assess implementation of LIBOR
transition in accordance with plan and
regulatory requirements
• Review effectiveness of governance
framework transition to BAU
Risk Assessment Enhancement
• Align risk taxonomy and key risk
themes across LODs
• Integrate with regulatory change
management
• Use data mining techniques to link data
inventory to risk taxonomy
• Use tooling that helps predict exposure
and incorporates analytics algorithms
Issue Validation and Tracking
• Test to confirm implementation of
corrective actions
• Track action plans
Data Analytics
• Analyze risk and control environment
• Assess exposure estimates using data
analytics to source information,
bypassing possible data feed issues
• Conduct intelligent audit scoping and
risk attribute sampling
• Leverage data for root cause
identification
• Conduct Audit and Executive reporting
Continuous Monitoring
• Identify and evaluate emerging risks
using data mining and analytics
• Conduct Regulatory Horizon Scanning
• Perform continuous auditing using
data- driven testing
• Conduct KPI monitoring
Quality Assurance
• Perform QA reviews of audit work to
assess whether risks were adequately
identified, appropriate controls were
tested and issues were raised for
complying with regulatory guidance
• Conduct lessons learned analysis
Training
• LIBOR subject matter knowledge and
experience incorporated into content
and delivery of training programs
Reporting
• Use data visualization capabilities for
reporting
• Report risk and control themes to the
Audit Committee and Senior
Management
• Audit KPI development and monitoring
• Conduct root cause analysis

www.linkedin.com/showcase/16183502
@AccentureFSRisk
TO FIND OUT MORE
Samantha Regan
Managing Director, Finance & Risk,
Accenture Regulatory & Compliance Lead
samantha.regan@accenture.com
Venetia Woo
Director, Finance & Risk
NA Regulatory Strategy Lead
venetia.w.woo@accenture.com
Erin Nunes
Senior Manager, Finance & Risk
Internal Audit Offering Lead
erin.nunes@accenture.com
Accenture LIBOR Transition Offering:
https://www.accenture.com/us-en/services/financial-services/libor
Accenture Finance & Risk:
https://www.accenture.com/us-en/financial-services-finance-risk
Accenture Finance & Risk LIBOR Blogs:
https://financeandriskblog.accenture.com/tag/libor
Accenture LIBOR Survey:
https://www.accenture.com/us-en/insights/financial-services/libor-
transition-survey

LEGEND
ARRC: ALTERNATIVE REFERENCE RATES COMMITTEE
BAU: BUSINESS AS USUAL
LIBOR: LONDON INTERBANK OFFERED RATE
KPI: KEY PERFORMANCE INDICATOR
KRI: KEY RISK INDICATOR
LOB: LINE OF BUSINESS
LOD: LINE OF DEFENSE
MI: MANAGEMENT INFORMATION
IIA: INSTITUTE OF INTERNAL AUDITORS

THE ROLE OF INTERNAL AUDIT IN A
LIBOR TRANSITION
About Accenture
Accenture is a leading global professional services
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strategy and consulting, interactive, technology and
operations, with digital capabilities across all of
these services. We combine unmatched
experience and specialized capabilities across
more than 40 industries – powered by the world’s
largest network of Advanced Technology and
Intelligent Operations centers. With 509,000 people
serving clients in more than 120 countries,
Accenture brings continuous innovation to help
clients improve their performance and create
lasting value across their enterprises. Visit us at
www.accenture.com
Disclaimer
This presentation is intended for general
informational purposes only and does not take
into account the reader’s specific circumstances,
and may not reflect the most current
developments. Accenture disclaims, to the
fullest extent permitted by applicable law, any
and all liability for the accuracy and
completeness of the information in this
presentation and for any acts or omissions made
based on such information. Accenture does not
provide legal, regulatory, audit, or tax
advice. Readers are responsible for obtaining
such advice from their own legal counsel or other
licensed professionals.

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