Final answer:
The management's responsibility section of the audit report for a nonpublic company declares that financial statements are managed by the company's management. The role of the auditor is to independently verify these statements.
Step-by-step explanation:
The management's responsibility section of the standard unmodified opinion audit report for a nonpublic company states that the financial statements are the responsibility of management. Audit reports clearly delineate the segregation of responsibilities between management and the auditor. Management is required to provide financial statements that are accurate and fair, while the auditor's role is to review these statements and certify their reasonableness.
In the context of corporate governance, the board of directors is the primary body that oversees top executives and ensures they fulfill their duties. The auditing firm comes as a second line of defense by conducting an independent examination of the company's financial records. However, when these institutions, along with outside investors, fail to effectively oversee and evaluate the company's performance, as in the case of Lehman Brothers, there can be severe consequences including providing investors with misleading financial information.The management's responsibility section of the standard unmodified opinion audit report for a nonpublic company states that the financial statements are the responsibility of management.