Assumption Disclosure explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The quality of an assumption disclosure is not determined by how many assumptions the report lists. It is determined by whether the reader can tell what was assumed, why, and what difference it makes.
The test
For every material assumption, the valuer should assume that a sceptical and informed reviewer asks:
- Why this number and not another?
- What evidence supports it?
- Why should this assumption be accepted?
If the report cannot answer these questions from within its own four corners — without reliance on undisclosed workpapers, verbal explanations or post-facto clarifications — the assumption disclosure is unlikely to be defensible.
A complete work file is not a defence to a weak disclosure. The work file establishes what the valuer did; the report is what the CoC, the resolution applicants, the tribunal and the regulator actually read, and it must stand on its own.
This is why the test excludes post-facto clarifications. An explanation offered after a challenge is made — however accurate — arrives too late to have informed the decision that was taken on the report as issued.
The purpose is not to eliminate professional judgement, but to ensure that professional judgement is visible, traceable and supported by evidence.
The Disclose and Justify Framework
| Step | Element | What the report should explain |
|---|---|---|
| 1 | State the assumption | Clearly identify the assumption adopted and quantify it where applicable |
| 2 | Identify the source | The information source relied upon and its relevance to the assignment |
| 3 | Provide the reasoning | Why the assumption was selected and why alternative assumptions were not adopted |
| 4 | Address the impact | How changes may affect the conclusion; refer to sensitivity analysis where relevant |
Step 3 is the one that is skipped. Reports frequently disclose the assumption and its source but fail to explain why the selected assumption was more appropriate than the alternatives — and this is the area most commonly questioned during professional review and scrutiny.
Applying it to a single number
| Question | What it establishes | Illustration |
|---|---|---|
| What is the assumption? | Identification and quantification | Revenue projected to grow at 12% CAGR over five years |
| Why is it reasonable? | Evidence and analysis supporting it | Historical CAGR, industry outlook and operational capacity support the projection |
| How does it affect value? | Materiality and potential impact | A reduction in the growth assumption materially lowers enterprise value |
A disclosure stating that revenue is projected to grow at 12% per annum merely identifies the assumption. A defensible one additionally explains how it compares with historical performance, industry expectations, capacity constraints and company-specific circumstances, and indicates whether the conclusion is materially sensitive to changes in it.
Which assumptions get this treatment
Not every assumption requires the same explanation. Attempting to justify every minor input equally makes a report unnecessarily lengthy while diverting attention from the assumptions that genuinely influence the outcome. Enhanced assumption disclosure is warranted where the assumption:
| Indicator | Typical examples |
|---|---|
| Has a material impact on value | Discount rates, growth rates, terminal value assumptions, significant liquidation discounts |
| Involves substantial professional judgement | Company-specific risk premiums, obsolescence adjustments, recoverability assessments |
| Relies on information that cannot be independently verified | Management projections, future order books, contingent claims |
| Involves unusual or non-standard treatment | Nil value assignments, departures from market benchmarks, exceptional adjustments |
| Is likely to attract regulatory or stakeholder scrutiny | Going-concern assumptions, liquidation discounts, treatment of encumbrances or contingent liabilities |
What separates weak from defensible
Weak: "A discount rate of 14.5% has been applied, reflecting the risk profile of the company and prevailing market conditions."
Defensible: a WACC of 16.2% derived component by component — risk-free rate from the 10-year GOI yield at the valuation date with the source cited, an equity risk premium from a dated published source, a beta unlevered from a named peer group and re-levered to the company's capital structure per the Information Memorandum, and a company-specific risk premium itemised against customer concentration, single-location risk and the absence of an independent management team.
The difference is not length. It is that every component of the second answers "why this number and not another" without leaving the page.
Common mistakes
- Disclosing the assumption and its source but not the reasoning.
- Relying on the work file to answer questions the report should answer.
- Justifying every input equally and burying the material ones.
- Quantifying an assumption without indicating the conclusion's sensitivity to it.