Choice "C" is correct. Management may choose not to correct internal control deficiencies due to cost-benefit considerations, and this is not part of the understanding between the auditor and the client.
Choice "a" is incorrect. The understanding should include management's responsibilities, one of which is to adjust the financial statements to correct material misstatements identified by the auditor.
Choices "d" and "b" are incorrect. The understanding should include the auditor's responsibilities, one of which is to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.