Choice "B" is correct. An understanding with the client should be established regarding management's responsibilities, which include the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework. The understanding should be documented through a written communication, such as an engagement letter.Choice "a" is incorrect. Judgments about materiality are the auditor's responsibility and would not be included in an engagement letter.
Choice "d" is incorrect. Management would not necessarily be responsible for violations of laws and regulations committed by employees.Choice "c" is incorrect. The auditor is not responsible for searching for significant internal control deficiencies.