Lesson 5 of 7 · All lessons in this module
- Standard V: Investment Analysis, Recommendations, and ActionsVideo lesson
- Standard V(A) cases: reasonable basis and outside research
- Standard V(A) cases: models, advisers and providers
- Standard V(B) cases: services, costs and process changes
- Standard V(B) cases: risks, limitations, facts and opinions
- Standard V(C) cases: records and retention
- Standard V cases: what the 2027 text adds
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 5 of 7 · 15 min
Standard V(B) cases: risks, limitations, facts and opinions
Say what could go wrong, judged on what you knew at the time, include the factors that drive the conclusion, and label every forecast, estimate and model output as opinion.
In short
- Significant risks and limitations (leverage, complex instruments, liquidity, capacity, counterparty, country, sector, security-specific and credit risk) must be disclosed as known at the time.
- A limitation counts now, even if far away: capacity far below its threshold must still be disclosed to current and prospective clients.
- A loss after disclosure does not show a V(B) breach; not knowing a risk may reveal a V(A) diligence gap instead.
- Reports must include the important factors; scope may be narrowed if the limits are stated, and capsule lists should say fuller information is available.
- Fact versus opinion: forecasts, estimates (reserves, earnings, dividends) and model output are opinions; give assumptions and limits and do not promote a model's accuracy.
- Procedures: encourage rigorous review of publications, keep records on the nature of the research, and be able to supply the factors left out if asked.
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