Discussant's response to risk and uncertainty in financial reporting and the auditor's role;

              Discussant's Response to
Risk and Uncertainty in Financial
Reporting and the Auditor's Role
J. Herman Brasseaux
University of New Orleans
Let me begin by saying that Doug Carmichael's paper is a most comprehen­sive,
if not overwhelming, treatment of an extremely timely issue in our profession. The issue has been raised before but not treated in this fashion. The paper is provocative; it calls for a basic change in reporting on uncertainty, and as such, will undoubtedly generate some lively debate.
My views are basically parallel to Doug's (and others') on the central theme of the paper. So, rather than contest his thesis, I will attempt to deal with some of the practical reasons why it may be some time before the profession is ready and willing to take the step recommended in Doug's paper.
The Problem of Uncertainty
A discussion of the auditor's role in this area must include a consideration of the nature of uncertainty as it affects the business enterprise and a consideration of the methodology of reflecting and reporting on uncertainty in financial state­ments.
The business enterprise has experienced increasing complexity over the past two centuries, but especially in the most recent 30 years, and the uncertainty within the business environment has greatly accelerated. Measuring income for a short period such as a quarter or a year and measuring financial position at a given date, when one considers the risk environment of business entities in today's world, is a heroic undertaking indeed! Coupled with this is the fact that our methodology and capability to measure, portray and communicate business uncer­tainty
to the average reader have been and remain inadequate.
Given these problems, it is encouraging that we are making progress in getting a better understanding of the impact of uncertainty and in reporting thereon. FASB Statement No. 5, SEC disclosure requirements in this area, the Trueblood Report, and the soon to be released FASB proposal on the conceptual framework project are but a few examples of our efforts to get a better handle on the uncertainty issue.
A quick look at annual reports being published at this time of the year attests to the literal explosion which is taking place in financial statement disclosure. The notes to the statements frequently run several pages longer than the basic statements and much of the increased disclosure relates to the complexity and uncertainty of the firm's environment. To cite one case in point, the 1975 Annual Report of Occidental Petroleum presents the basic financial statements in five pages, but the notes require nine pages. The note on contingent liabilities
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