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

Question

Quizplus · Accepted Answer

The best defense for Patel & Patel would be that the theft involved sophisticated methods such as clever forgeries and collusive fraud that would not be detected by a standard audit. This defense implies that the auditors conducted their work according to professional standards, but the nature of the fraud was such that it could not be detected through normal auditing procedures.

The King Surety Company Wrote a General Bond Covering Thefts