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The King Surety Company wrote a general fidelity bond covering defalcations by the employees of ...

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The King Surety Company wrote a general fidelity bond covering defalcations by the employees of ...

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?
A) King is not in privity of contract.
B) The shortages were the result of clever forgeries and collusive fraud which would not be detected by an examination made in accordance with generally accepted auditing standards.
C) Lynch & Merritt were not guilty either of negligence or fraud.
D) Lynch & Merritt were not aware of the King-Wilson surety relationship.

Textbook

Auditing: The Art and Science of Assurance Engagements, Canadian Edition

Edition: 12^th

Authors: Arens, Elder, Beasley, Splettstoesser

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Auditing: The Art and Science of Assurance Engagements, Twelfth Canadian Edition, 12/E (Arens, Elder, Beasley, Splettstoesser)

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