Assumptions and Sensitivity Analysis 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.
Every valuation rests on assumptions. That is not a weakness; it is what valuation is.
The defect is not making assumptions. It is not saying so — because an assumption nobody can see is an assumption nobody can test, and a number nobody can test cannot support a decision about other people's money.
A valuation resting on undisclosed assumptions is legally defective, however reasonable the assumption. State every one in a single place, justify those that are material, and present sensitivity analysis so the CoC can see how the answer moves. Since 1 April 2026 the report also follows a standardised format per asset class under IVS, carries a VRIN, and must address ESG factors. Where data is genuinely unavailable, build assumptions from industry benchmarks and say that is what you did.
The format is no longer yours to choose
Until the February 2026 reforms, how a valuation report was laid out was largely the valuer's decision, and disclosure quality varied enormously between reports on the same debtor.
Three changes closed that off:
A standardised reporting format per asset class. Land and Building, Plant and Machinery and Securities or Financial Assets each have a prescribed structure. The assumptions section is part of it, which means "we did not have a section for that" stopped being an available explanation.
IVS only, from 1 April 2026. The earlier latitude to work to an RVO's own standard or another recognised framework has gone. Assumption disclosure and the basis of value are governed by IVS, not by house style. IVS for IBC valuations →
A VRIN on every page. The Valuation Report Identification Number is generated on the IBBI portal, sits in the left-hand footer of every page, and is dated to issue — so the version of the report containing a given set of assumptions is identifiable. VRN, VRIN and liability →
The practical effect on assumptions is straightforward. A prescribed structure makes an omission visible. Where a section exists and is empty, that is a finding on the face of the report rather than something an objector has to reconstruct.
ESG belongs in the assumptions now
The 2025 IVS update brought ESG factors into the valuation exercise, and the February 2026 framework made their consideration mandatory in IBC valuations.
In a distressed manufacturing debtor this is rarely abstract. The items that actually move numbers:
- Environmental remediation liabilities — contaminated land, effluent treatment obligations, accumulated hazardous waste. These reduce realisable value and are frequently undisclosed by the debtor.
- Consent and compliance status — a plant operating without a valid pollution control consent, or with a closure direction outstanding, is not the plant the register describes.
- Employment and social obligations — the settlement expected before a workforce releases a site is a real cost against the estate. When workers block access →
- Transition risk — an asset viable today and stranded by a regulatory or technology shift within the plan period.
Where an ESG factor is material, it belongs in the stated assumptions and, if it drives the answer, in the sensitivity analysis. Where it was considered and found immaterial, say that — a report silent on ESG now reads as a report that did not look.
Where assumptions come from in a distressed company
In a solvent business you assume relatively little — the data exists. In a CIRP, whole categories are missing:
- the business stopped trading years ago, so there are no current forecasts;
- management has left, so nobody can explain the numbers that do exist;
- records are seized or inaccessible; Valuing when records are seized →
- statutory demands are disputed with no resolution in sight;
- encumbrances may exist that nobody has disclosed.
So assumptions do more work here than in almost any other valuation context — which is precisely why the disclosure obligation is stricter.
How to build an assumption when there is no data
Not by guessing, and not by leaving the item out. By constructing it visibly:
Industry benchmarks. Sector recovery rates, comparable royalty ranges, typical completion costs per square foot, standard plant refurbishment costs.
Historical filings and regulatory submissions. Even a company with no accessible books has filed returns, and those filings are a source.
Third-party and creditor records. Bank statements held by lenders, GST returns, customer and supplier confirmations.
Professional judgment, labelled as such. A legitimate input — provided the report says "this is a judgment, here is the reasoning" rather than presenting it as though it were observed data.
Then the rule that makes all of it defensible: every such assumption is stated and justified in the report. Judicial scrutiny →
What sensitivity analysis is for
Not decoration. It answers the only question a CoC member genuinely needs answered about a number they cannot verify: how wrong could this be, and what would make it wrong?
A useful sensitivity presentation:
- identifies the two or three assumptions that actually drive the answer — not all twenty;
- shows the value at a low, central and high setting for each;
- flags where a small change produces a large swing, because that is where the risk sits;
- gives a range with the drivers named, rather than a point estimate.
"₹40–55 crore, driven mainly by the royalty rate and the assumed completion timeline" tells the CoC far more than "₹47 crore" — and it is a far better position to be in when the number is challenged.
Where a probability can be attached — disputed statutory demands are the standard case — a probability-weighted range is better still. Statutory liabilities →
The assumptions that most need stating
Because they are the ones most often left implicit:
| Assumption | Why it matters |
|---|---|
| Basis of value and valuation date | Different bases give different answers; the date is the insolvency commencement date |
| Going concern or realisable | The single biggest driver in a shut-down debtor → |
| Completion cost and timeline | Decides whether a real estate project has positive value at all |
| Recovery probability on receivables | Book balance is not a value |
| Treatment of disputed demands | Excluded, included, or ranged — say which |
| Encumbrances assumed absent | If you did not verify, say you did not |
| Assets not physically verified | Name them and state the effect |
| ESG factors | Remediation liabilities, consent status, transition risk — mandatory since the 2025 IVS update |
| Forecast revenue | Especially where the historical line is not the base case |
The failure mode
A report that reads confidently, produces a single number, and does not disclose that the number assumed a two-year completion timeline when four is equally plausible.
When the challenge comes, the valuer explains the assumption for the first time in the hearing. At that point it looks like a rationalisation rather than a method — and the CoC decision built on the number is exposed, whether or not the assumption was sound.
Disclose it in the report and it is analysis. Disclose it under cross-examination and it is a problem.
Key takeaways
- Making assumptions is not the defect. Hiding them is.
- The format is prescribed — an empty section is now a visible finding.
- ESG factors are mandatory, and remediation liabilities are usually undisclosed.
- List them in one place, not scattered through the narrative.
- Build missing data from benchmarks and filings, and say so.
- Label professional judgment as judgment.
- Sensitivity on the two or three drivers, not all of them.
- Give a range with the drivers named.
- State which assets were not verified and what that does to the number.
Read next
- Judicial Scrutiny of Valuation Reports Under IBC
- International Valuation Standards for IBC Valuations
- Going Concern or Realisable Basis: Valuing a Shut-Down Debtor
- Statutory Liabilities in IBC Valuation: GST, TDS and PF
Disclaimer: Positions stated as on 5 September 2026. General guidance on reporting practice only.