Final answer:
Management's responsibilities in a private company audit involve establishing internal controls, risk management, maintaining efficient operations, and ethical governance. They work alongside the board of directors for oversight, while auditing firms review financial records, adding an additional layer of verification albeit not foolproof, as exemplified by the Lehman Brothers collapse.
Step-by-step explanation:
In the context of the audit of a private company, management's responsibilities related to internal controls include designing and implementing an effective system of internal control that ensures accurate financial reporting and compliance with laws and regulations. Management is accountable for the identification and mitigation of risks that could affect the financial statements. They must also ensure that the company operates effectively and efficiently and that assets are protected against loss. It is important for management to create a culture of integrity and ethical values and to maintain oversight responsibility through the board of directors. However, the role of the auditing firm cannot be understated, as they review the company's financial records and certify the fairness of the financial statements. A third layer of oversight comes from outside investors, such as those involved with mutual funds or pension funds. Their stake in the company incentivizes them to monitor corporate governance. Yet, as seen in the case of Lehman Brothers, these institutions do not always successfully prevent the dissemination of inaccurate financial information to investors. This indicates the critical need for robust and effective corporate governance practices.