Limiting Conditions 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.
Assumptions are the most frequent point of challenge in a valuation report. A defensible report separates assumptions from limiting conditions, states the basis for each significant assumption, identifies which conclusions depend on it, and discloses what was not verified — so a reader can test the reasoning rather than accept it.
The distinction that gets blurred
| Assumption | Limiting condition | |
|---|---|---|
| What it is | A matter taken to be true for the purposes of the valuation | A restriction on scope, investigation or use of the report |
| Example | That the entity continues as a going concern; that a licence will be renewed | That title was not independently verified; that the report may not be relied on by third parties |
| What it affects | The value concluded | The reliance that can be placed on the conclusion |
| How it is tested | Sensitivity analysis | Disclosure and, where material, qualification |
Collapsing the two into a single "assumptions and limitations" list obscures which is which. A reader cannot tell whether a listed item changes the number or merely restricts who may use it.
What a significant assumption requires
- State it plainly. An assumption buried inside a narrative paragraph has not been disclosed.
- Explain its basis. Where did it come from — management representation, market data, a third-party report, the valuer's own analysis?
- Identify what depends on it. Which part of the conclusion moves if the assumption fails?
- Disclose the evidence relied upon, or state that none was available.
The publication's diagnosis is that reports fail where significant assumptions remain unsupported. Steps 2 and 4 are what convert an assumption from an assertion into a supported position.
Assumptions sourced from management
In a distressed engagement most forward-looking assumptions originate with management or the resolution professional. That is unavoidable and legitimate — but the source has to be visible.
Three practices make it defensible:
- Attribute the assumption to its source in the report.
- Corroborate it where possible against historical performance, market data or independent evidence, and say what corroboration was done.
- Flag divergence. Where a management projection departs sharply from the entity's own history without explanation, the report should say so rather than adopt it silently.
Special assumptions
Some engagements require an assumption that is known to be contrary to fact at the valuation date — that a pending approval has been obtained, that a disputed title is clear, that a facility is operational. These are properly used, but they change the nature of the conclusion.
Where a special assumption is adopted, the report should state it prominently, explain why it was adopted, and — where feasible — indicate the effect on value of the assumption not holding.
Limiting conditions that mean something
A generic limiting conditions page reproduced across every engagement protects nothing, because it is not addressed to anything that actually happened in this engagement. Useful limiting conditions are specific:
- What was not verified — title, quantities, physical condition, existence.
- What information was not available, and what was done in its absence.
- What access was not obtained — sites not visited, records not produced, personnel not available.
- What the report may not be used for.
Each of these should be traceable to something in the engagement record.
The reporting format connection
For IBC engagements, IBBI's standardised reporting format requires, among other minimum disclosures:
- discounts and premia applied, with supporting reasoning;
- key assumptions relied upon;
- sustainability and ESG factors considered; and
- caveats, limitations and disclaimers.
Note that discounts and premia are singled out for supporting reasoning. A marketability or control adjustment stated as a percentage with no derivation is precisely the kind of unsupported judgement that draws challenge.
The assumption register
A practical device: maintain a register through the engagement recording, for each significant assumption, the source, the corroboration performed, the conclusion it affects, and whether it was sensitivity-tested. The register becomes both the workpaper trail and the raw material for the report's assumptions section.
Compliance checklist
- Separate assumptions from limiting conditions.
- For each significant assumption: state, source, link, evidence.
- Attribute management-sourced assumptions and record corroboration.
- Flag projections that diverge from history without explanation.
- Disclose special assumptions prominently with their effect.
- Make limiting conditions specific to the engagement.
- Give supporting reasoning for discounts and premia.
- Maintain an assumption register as a workpaper.
Common mistakes
- A combined assumptions-and-limitations list.
- Assumptions stated without a source.
- Adopting management projections silently.
- A boilerplate limiting conditions page.
- Percentage discounts with no derivation.