The King Surety Company wrote a general fidelity bond covering defalcations 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, public accountants. Which of the following would be Lynch & Merritt's best defence?

Question

Quizplus · Accepted Answer

Lynch & Merritt's best defense would be that the embezzlement was the result of clever forgeries and collusive fraud which would not be detected by an examination made in accordance with generally accepted auditing standards. This defense is known as the legal defense of the "independent intervening criminal act." In this case, King's claim against Lynch & Merritt is based on negligence or breach of contract, but Lynch & Merritt's defense is based on the fact that Cooney's conduct was so extraordinary that they should not be held liable for his actions.

The King Surety Company Wrote a General Fidelity Bond Covering