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IAI Actuarial Core Principles · Business Management · Professionalism and ethics case studies

An actuary is asked by a company's promoter to give a valuation opinion that will be shown to prospective investors. The actuary's work relied on membership data supplied by the company that she could not fully verify. Which approach to the report is most consistent with professional reporting standards?

The report should state the data sources, the checks performed, the reliance placed on company-supplied data and the limitations that follow. Readers such as investors must be able to judge the work fairly, and hiding or overstating data quality would be misleading and breach professional duties.

  1. AOmit any mention of the data, since mentioning it might lower investor confidence
  2. BState the data sources, the checks done, the reliance placed on the company's data and any resulting limitationsCorrect
  3. CMention data limitations only orally to the promoter
  4. DDescribe the data as verified to avoid questions from investors
  5. Add a general disclaimer that the actuary accepts no responsibility for anything in the report

Explanation

Reports should set out the data used, what checks were made and the limits of reliance so that third-party readers are not misled. Claiming verification is false, and omitting or only orally mentioning limitations leaves investors uninformed. A blanket disclaimer does not replace specific disclosure.

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