The King Surety Company wrote a general fidelity bond covering thefts of assets by the employees of Wilson, Inc. Thereafter, Cooney, an employee of Wilson, embezzled $17,200 of company funds. When the activities were discovered, King paid Wilson the full amount in accordance with the terms of the fidelity bond, and then sought recovery against Wilson's auditors, Lynch & Merritt, CPAs. Which of the following would be Lynch & Merritt's best defense?

Question

Quizplus · Accepted Answer

The best defense for Lynch & Merritt would be that the embezzlement was the result of clever forgeries and collusive fraud, which could not have been detected even with an examination done in accordance with generally accepted auditing standards. This defense would likely absolve Lynch & Merritt of any liability in this situation. The other choices are not viable defenses as they do not relate to the specific circumstances of this case.

The King Surety Company Wrote a General Fidelity Bond Covering