Audit and Assurance Practice Exam

The term 'management’s responsibility' in an audit report specifically refers to the obligation of management to prepare the financial statements in accordance with the applicable financial reporting framework, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

Management is tasked with ensuring that the financial statements are free from material misstatement, whether due to fraud or error. This includes implementing and maintaining adequate internal controls, selecting appropriate accounting policies, and exercising judgment in the application of those policies. The accuracy and completeness of the financial statements fundamentally rest on management’s adherence to these responsibilities, making it a central aspect of the audit process.

In contrast, the other choices focus on different aspects related to the audit. The auditor's role in ensuring compliance is separate from management’s duty and emphasizes the auditor's responsibilities during the audit. Management's obligations with respect to auditor findings concern follow-up actions but are secondary to the initial preparation of the financial statements. Legal responsibilities of the board of directors, while important, do not directly pertain to the scope of management’s responsibility regarding financial statement preparation as highlighted in the audit report.