Yes, it can happen, however I bristle anytime someone suggests "compass not working" - I've never spent all night searching for someone whose compass broke. I've done it three times looking for someone whot *thought* his compass broke. (The last time I promptly relieved them of their compass when I found them and walked them out with it..)

Your compass always works, you're not on a swiss train in the boonies.. Know the local declination.