Triad, Inc

Essay

Triad, Inc. sells body armor to various governments around the world. One of its major customers was a country that was experiencing civil unrest throughout the
past year. Triad, Inc. had a very material account receivable from this country's military
government at its fiscal year end on December 31.
Although it was temporarily kept a secret from the press, the military government
was overthrown in the last week of the calendar year and a new democratic government
was set up with an interim president. When elections were held in January, one
of the decisions made by the voters was to disavow any of the prior government's
debts to any entities outside the country. Triad, Inc. management and the audit firm
learn about these events from news reports in January while the integrated audit
engagement is in process.
(a) How should these events affect Triad, Inc.'s financial statements? How should they
affect the financial statement audit report? Does this scenario affect the auditor's
report on ICFR?
(b)Assume that the military government was overthrown in early January and Triad
and the auditor learned of it in February, when the audit was still in process.How
does your answer change?
(c) Assume that the military government was overthrown in March and that Triad
and the audit firm saw the news reports shortly after the 10K, including the audit
report, was filed with the SEC. How does your answer change?