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?

An auditor can be held liable under common law or statutory law liability. Common law liability arises from fraud, breach of contract, and negligence. Statutory law liability is the obligation that comes from a certain law or statute which is applied to society.  Here are some examples of legal liabilities for auditors: Negligence: An auditor is liable if they fail to perform their professional duties with reasonable skill and care. If their client suffers loss due to their negligence, they will be held liable. Fraud: An auditor is liable if they detect material misstatements, fraud, or... Show more

An auditor can be held liable under common law or statutory law liability. Common law liability arises from fraud, breach of contract, and negligence. Statutory law liability is the obligation that comes from a certain law or statute which is applied to society. 

Here are some examples of legal liabilities for auditors:
Negligence: An auditor is liable if they fail to perform their professional duties with reasonable skill and care. If their client suffers loss due to their negligence, they will be held liable.
Fraud: An auditor is liable if they detect material misstatements, fraud, or illegal acts in financial statements. They must inform specialist authorities about any kind of fraud or material misstatement.
Civil liability: An auditor is liable to compensate the company or its stakeholders for any losses resulting from their fraudulent or negligent conduct. 

Auditors generally place extra emphasis on the detection of misstatements in financial statements that will be widely used, such as those of public companies, or used by important outsiders, such as bank loan officers. 

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