The Demise of LIBOR: The Effect on Financial Statements of the Switch to Alternative Reference Rates
Keywords:
LIBOR, Alternative Reference Rates, Financial Statements, Financial InstrumentsAbstract
The change to alternative reference rates (ARRs) signals a basic revolution in the financial scene as ARRs such as the Sterling Overnight Index Average (SONIA) in the United Kingdom replace LIBOR in financial markets. Apart from a technological one, the shift to ARRs demands a fundamental review of financial institution operational operations, risk management, and financial product value in addition. For financial professionals who have to modify their accounting rules, risk assessments, and valuation models, ARRs sometimes differ from LIBOR in their calculating methods therefore their use offers challenges. Accounting systems and risk management techniques are prone to misalignment, thus businesses are driven to be alert in modifying their plans to fit the surroundings. Companies and financial analysts have to ensure compliance with new legislation and that their financial reporting correctly shows the outcomes of this change closely working with legal, accounting, and risk management departments. Companies have to actively grasp the subtleties of ARRs after LIBOR expires to meet changing needs of investors, authorities, and stakeholders, even while their financial statements remain accurate and dependable.
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