Final answer:
The auditor should check product innovation measures and their effectiveness in market integration, as well as the potential positive externalities, since insufficient or ineffective innovation could be the reason for not achieving market share growth.
Step-by-step explanation:
The auditor should review measures related to product innovation as a result of the failure to increase market share. Since management diverted funds with the expectation that product innovation would boost market share, it is essential to assess whether these innovations met consumer demands and were effectively integrated into the market. The auditor should look at the product development cycle, innovation strategy, rate of return on the investments made in innovation, and the correlation between the innovative efforts and customer satisfaction. Additionally, the possibility of positive externalities from said investments should be considered. Through examining these factors, the auditor can determine if the lack of growth in market share is due to insufficient or ineffective product innovation or other market factors.
Company investments in research and development can create positive externalities by generating new technologies that benefit society, improving industry standards, and potentially leading to spillover effects where other firms or sectors benefit from the innovations without having directly invested in them. These developments might provide societal benefits beyond the private returns realized by the company. However, the auditor should verify if the expected social benefit aligns with the company's strategic objectives and market outcomes.