Foundations of Financial Management

Introduction

Financial management is the discipline concerned with obtaining, allocating, and controlling financial resources so that an organization can achieve its objectives. Every organization must answer three fundamental questions: Which investments should be undertaken? How should those investments be financed? How should financial performance and risk be managed over time?

These questions apply to manufacturing companies, banks, technology firms, public-sector bodies, charities, and small businesses. Although accounting supplies information about past transactions and financial reporting communicates results to users, financial management is primarily concerned with decisions that shape the organization’s future. It combines accounting information with economics, statistics, law, strategy, and managerial judgment.

A financial manager therefore does more than prepare budgets or monitor cash. The financial manager evaluates investment opportunities, determines financing arrangements, manages liquidity, assesses risk, supports strategic decisions, and helps establish systems that protect organizational assets and promote accountability.

Learning Objectives

After studying this chapter, you should be able to:

1. Explain the finance function and distinguish it from accounting.
2. Describe the principal financial objective and evaluate alternative objectives.
3. Explain stakeholder value and the relationship between financial and non-financial interests.
4. Compare the principal forms of business organization.
5. Explain agency theory, principal–agent conflicts, and information asymmetry.
6. Describe fiduciary duties and major corporate governance mechanisms.
7. Identify the responsibilities and professional skills of financial managers.
8. Apply these concepts to an organizational decision involving investment, financing, risk, and governance.

1. The Finance Function

The finance function is the organizational activity responsible for planning, acquiring, using, and monitoring financial resources. Its central purpose is to ensure that funds are available when needed and are committed to uses that create sustainable value.

Investment decisions

Investment decisions determine which assets, projects, products, or strategic initiatives an organization should pursue. These may include:

• purchasing machinery or property;
• opening a new branch;
• developing a digital platform;
• acquiring another business;
• investing in research and development; and
• holding liquid assets such as cash and marketable securities.

Investment decisions involve expected returns, timing, uncertainty, strategic fit, and opportunity cost. A project may appear profitable in accounting terms but still be unattractive if it requires excessive capital, exposes the organization to unacceptable risk, or produces returns below those available from alternatives.

Financing decisions

Financing decisions concern the sources used to fund investments and operations. Common sources include retained earnings, ordinary shares, preference shares, bank loans, bonds, leases, and trade credit.

The financing decision involves more than finding the cheapest source of funds. Debt may reduce the immediate cost of capital but increases fixed payment obligations and financial risk. Equity may provide greater flexibility but can dilute existing ownership and voting power. The appropriate financing mix depends on the organization’s cash-flow stability, asset structure, growth opportunities, tax environment, legal constraints, and risk tolerance.

Working-capital decisions

Working capital concerns short-term assets and liabilities. Managers must determine appropriate levels of cash, inventories, receivables, and short-term obligations. Excessive working capital may reduce profitability because funds remain idle. Insufficient working capital may cause missed payments, production interruptions, lost sales, or insolvency.

A basic accounting relationship is:

Current assets generally include cash, inventories, and trade receivables. Current liabilities generally include trade payables and short-term borrowings. This relationship is an accounting measure rather than a complete measure of liquidity: the quality and timing of assets and liabilities also matter.

Risk management

Financial managers identify, measure, and respond to risks such as changes in interest rates, exchange rates, commodity prices, credit quality, cyber incidents, fraud, and regulatory requirements. Responses may include diversification, insurance, contractual protections, hedging, internal controls, and maintaining liquidity reserves.

Financial planning and control

Financial planning translates strategic objectives into projected revenues, costs, investments, financing requirements, and cash flows. Financial control compares actual performance with plans, investigates significant variances, and supports corrective action. Planning is not a prediction that will necessarily be correct; it is a structured basis for decision-making under uncertainty.

2. Financial Management and Accounting

Accounting and financial management are closely related but distinct.

The distinction should not be overstated. Financial managers rely on accounting information, while accountants increasingly interpret information for planning and decision support. Both functions require integrity, technical competence, and awareness of legal and ethical obligations.

Accounting profit and cash flow are not identical. Profit includes non-cash items such as depreciation and may recognize revenue before cash is collected. Financial decisions must therefore consider the timing, certainty, and amount of cash flows, not merely reported profit.

3. The Objective of Financial Management

Shareholder wealth maximization

In a conventional for-profit corporation, the central financial objective is often expressed as maximizing shareholder wealth. In a listed company, this is commonly associated with increasing the long-term market value of ordinary shares. In an unlisted company, it means increasing the economic value of the owners’ investment.

A long-term perspective is essential. A decision that increases this year’s earnings by reducing product quality, underinvesting in employees, or ignoring environmental obligations may destroy value later. Wealth maximization is therefore not equivalent to maximizing short-term accounting profit.

The economic value of an investment is related to the present value of expected future cash flows. In a simplified setting:

Here, CFₜ is the expected cash flow in period t, r is the required rate of return expressed per period, and n is the number of periods. The formula assumes that cash flows are measured consistently, the discount rate reflects their timing and risk, and the relevant period is clearly defined. A higher expected cash flow generally increases value, while later or riskier cash flows generally reduce value when reflected in a higher discount rate.

This model is not a mechanical answer to every decision. Expected cash flows and risk are uncertain, and estimates may be affected by bias. Nevertheless, it provides a disciplined framework for comparing alternatives.

Profit maximization and its limitations

Profit maximization is a useful operating objective but an incomplete financial objective. It may fail to account for:

• the timing of returns;
• the risk of achieving returns;
• the investment required to generate profit;
• differences between accounting profit and cash flow; and
• the distribution of benefits among stakeholders.

For example, Project A may generate a profit of $100,000 next year, while Project B generates the same profit in five years. Without considering timing and risk, profit comparison treats them as equivalent even though their economic values differ.

Sustainable and stakeholder-oriented objectives

Modern organizations increasingly recognize that durable financial value depends on relationships with employees, customers, suppliers, communities, governments, and the natural environment. A company that mistreats workers, misleads customers, or violates environmental law may face fines, litigation, reputational damage, higher financing costs, and lost demand.

Stakeholder considerations do not necessarily contradict shareholder wealth maximization. They may be essential to achieving it over the long term. However, genuine conflicts can arise. For example, increasing wages may reduce short-term profit while improving productivity, retention, and reputation. Financial managers must assess both immediate financial effects and broader consequences.

4. Stakeholder Value and Competing Interests

A stakeholder is an individual or group that can affect, or is affected by, an organization’s activities. Important stakeholders include:

• shareholders and other owners;
• lenders and suppliers of finance;
• employees and managers;
• customers;
• suppliers and business partners;
• regulators and tax authorities;
• local communities; and
• future generations affected by environmental decisions.

Stakeholder value refers to the benefits created for these groups. Stakeholders do not have identical claims. Lenders typically have contractual claims to interest and principal, while shareholders have residual claims after other obligations are met. Employees may have contractual rights as well as interests in security, fair treatment, and development.

Financial managers should distinguish between trade-offs, where one group’s benefit may reduce another’s, and complementarities, where benefits reinforce one another. Investment in quality control may increase costs initially but reduce returns, warranty claims, and reputational damage. Better employee training may improve both employee welfare and operating performance.

A useful decision process is to:

1. identify affected stakeholders;
2. determine the legal and contractual rights of each group;
3. estimate financial and non-financial effects;
4. assess short-term and long-term consequences;
5. consider fairness, transparency, and risk; and
6. document the basis for the decision.

5. Forms of Business Organization

The legal form of an organization affects ownership, liability, taxation, access to finance, governance, and continuity.

Sole proprietorship

A sole proprietorship is owned and controlled by one individual. It is easy to establish and permits rapid decision-making. The owner normally receives all residual profits and bears business losses. A major disadvantage is unlimited personal liability: business creditors may have claims against the owner’s personal assets, subject to applicable law. The business may also depend heavily on the owner’s skills and ability to obtain finance.

Partnership

A partnership is formed when two or more persons carry on a business together under an agreement. Partnerships may provide greater skills and capital than a sole proprietorship. In a traditional general partnership, partners may have unlimited liability and may bind one another in business dealings. Partnership agreements should address capital contributions, profit sharing, decision rights, dispute resolution, admission or withdrawal of partners, and dissolution.

Limited partnerships and limited liability partnerships may provide different liability and governance arrangements. The precise legal consequences depend on the jurisdiction.

Corporation or company

A corporation is a separate legal person from its owners. It can own property, enter contracts, borrow money, sue, and be sued. Ownership is commonly represented by shares, and shareholders usually benefit from limited liability, meaning their financial exposure is generally limited to their investment, subject to exceptions such as fraud or wrongful conduct.

A corporation may have perpetual succession, making it easier to transfer ownership and continue operations when shareholders or managers change. It can also raise substantial capital. These advantages are accompanied by formal reporting requirements, governance obligations, agency problems, and regulatory oversight.

Private and public companies

A private company usually restricts the transfer of shares and does not offer them broadly to the public. A public company may raise capital from a wider investor base and, if listed, may have shares traded on a securities exchange. Public companies generally face more extensive disclosure, audit, governance, and investor-protection requirements.

Cooperative and social enterprise forms

A cooperative is owned and controlled by members who use its services or contribute to its activities. Voting may follow a member-based principle rather than the number of shares held. A social enterprise combines commercial methods with explicit social or environmental objectives. These forms illustrate that organizational purpose and ownership structure need not be identical to a conventional investor-owned corporation.

6. Agency Theory and Principal–Agent Conflicts

Agency theory studies relationships in which one party, the principal, delegates work or decision authority to another party, the agent. In a corporation, shareholders are principals and directors and executives are agents. Lenders also delegate monitoring and repayment responsibilities to managers who control the borrower’s assets.

Agency problems arise because:

1. principals and agents may have different objectives;
2. agents usually possess more information about operations;
3. monitoring is costly; and
4. contracts cannot anticipate every future event.

Manager–shareholder conflict

Managers may pursue private benefits such as excessive compensation, prestige projects, unnecessary expansion, favorable employment conditions, or reduced effort. They may also prefer lower-risk strategies because their personal wealth and careers are concentrated in one organization, while diversified shareholders may prefer value-increasing risk-taking.

Controlling–minority shareholder conflict

Where ownership is concentrated, controlling shareholders may influence decisions in ways that benefit themselves at the expense of minority shareholders. Examples include related-party transactions on unfavorable terms, transfer of corporate opportunities, or disproportionate voting arrangements.

Shareholder–lender conflict

Shareholders may benefit from strategies that increase risk because shareholders receive residual gains while lenders bear part of the downside. Managers acting for shareholders might undertake a highly risky project after debt has been issued, reduce assets available to creditors, or pay excessive dividends. Loan covenants, security interests, and monitoring help limit these conflicts.

Information asymmetry

Information asymmetry exists when one party has better or more timely information than another. Managers typically know more about operational conditions than outside investors. This can produce:

• adverse selection, where hidden information affects decisions before a contract is made; and
• moral hazard, where hidden actions affect outcomes after a contract is made.

Accurate disclosure, independent audits, due diligence, internal controls, and strong boards reduce—but do not eliminate—information asymmetry.

7. Fiduciary Duties and Ethical Responsibilities

A fiduciary is a person entrusted to act for another party and expected to exercise loyalty, care, and good faith. Directors and senior officers commonly owe fiduciary duties to the company, although the exact legal rules vary by jurisdiction.

Duty of care and competence

Decision-makers should act with the care, skill, and diligence that a reasonably careful person in a comparable position would exercise. This does not require perfect outcomes. It requires an informed process, adequate inquiry, attention to material risks, and appropriate reliance on expert advice.

Duty of loyalty

A fiduciary should place the organization’s interests ahead of personal interests in matters within the fiduciary relationship. Conflicts should be disclosed and managed. A manager should not use confidential information or a corporate opportunity for personal benefit without proper authorization.

Good faith and proper purpose

Directors should act honestly and use their powers for legitimate organizational purposes. Formal compliance with a procedure does not make a decision ethical if the underlying purpose is improper.

Confidentiality and responsible information use

Financial managers handle sensitive information about forecasts, acquisitions, pricing, customers, employees, and strategy. Unauthorized disclosure, insider trading, manipulation of forecasts, and concealment of losses can cause legal, financial, and reputational harm.

Ethical financial management requires more than avoiding illegal conduct. It includes accurate reporting, transparent assumptions, fair treatment, professional skepticism, and willingness to escalate concerns.

8. Corporate Governance Mechanisms

Corporate governance is the system by which organizations are directed, controlled, and held accountable. It allocates authority among shareholders, boards, executives, auditors, and other stakeholders.

Board of directors

The board provides strategic oversight, appoints and monitors senior management, approves major investments and financing, oversees risk, and protects the organization’s long-term interests. Effective boards include members with relevant expertise, independence, diversity of experience, and sufficient time for their responsibilities.

Board committees

Common committees include:

• an audit committee, which oversees financial reporting, internal controls, and external audit;
• a remuneration or compensation committee, which reviews executive pay; and
• a nomination or governance committee, which addresses board composition and succession.

Internal controls

Internal controls are policies and procedures designed to safeguard assets, support reliable reporting, promote operational efficiency, and encourage compliance. Examples include segregation of duties, authorization limits, reconciliations, access controls, inventory counts, and independent review.

Segregation of duties reduces the risk that one individual can authorize, execute, record, and conceal an improper transaction. In a small organization, complete segregation may be impractical; compensating controls such as owner review and bank reconciliations become important.

External audit and disclosure

External auditors provide an independent opinion on whether financial statements are prepared in accordance with the applicable reporting framework. An audit improves credibility but does not guarantee that every fraud or error will be detected. Management remains responsible for the financial statements and internal control environment.

Timely and understandable disclosure enables investors and other users to evaluate performance, risk, governance, and prospects. Misleading disclosure can create legal liability and undermine market confidence.

Incentive systems

Compensation can align managers with organizational objectives through salaries, bonuses, shares, options, or long-term performance awards. Poorly designed incentives may encourage earnings manipulation, excessive risk-taking, or neglect of long-term consequences. Balanced scorecards and deferred compensation can reduce reliance on a single short-term measure.

9. The Role and Skills of the Financial Manager

The chief financial officer commonly leads the finance function, supported by treasurers, controllers, financial analysts, tax specialists, risk managers, and investor-relations professionals.

The treasurer often manages cash, banking relationships, financing, investments, liquidity, and financial risk. The controller commonly oversees accounting records, reporting, budgeting, internal controls, and compliance. In practice, responsibilities vary with organizational size and structure.

A capable financial manager needs:

• financial statement and accounting literacy;
• investment and financing analysis;
• cash-flow and liquidity management;
• risk identification and scenario analysis;
• knowledge of law, taxation, regulation, and governance;
• data and technology skills;
• communication and negotiation ability; and
• ethical judgment.

Technology increasingly supports forecasting, reporting, fraud detection, workflow automation, and scenario analysis. Artificial intelligence can identify patterns and generate forecasts, but its outputs depend on data quality, model design, and appropriate human oversight. Financial managers remain responsible for validating assumptions, protecting confidential information, explaining decisions, and recognizing situations in which automated recommendations are unreliable.

10. Applied Case: Meridian Home Systems Ltd.

The following is a fictional illustrative case.

Background

Meridian Home Systems Ltd. is a privately owned company producing energy-efficient household equipment. Its founders own 70 percent of the shares, while employees and outside investors own the remainder. The company is considering a $4 million automated production line expected to reduce unit costs and improve product quality.

The proposed project would be financed by a bank loan. The bank requires quarterly financial reporting, a minimum liquidity ratio, and a restriction on additional borrowing. The operations director strongly supports the project because it would increase production capacity. The finance manager is concerned that demand forecasts are optimistic and that the loan could make the company vulnerable during a downturn.

Problem

The board must decide whether to proceed, how much debt to assume, and what controls should be introduced. The decision involves investment value, financing risk, stakeholder effects, and possible agency conflicts.

Analysis

First, the finance manager should estimate incremental cash flows rather than relying only on projected accounting profit. Relevant items include the equipment cost, installation, additional working capital, operating savings, taxes, maintenance, salvage value, and the timing of receipts and payments.

Second, management should test alternative scenarios. Under a strong-demand scenario, the project may generate sufficient cash to service the loan comfortably. Under a weak-demand scenario, fixed debt payments could force reductions in employment or maintenance and could breach the bank’s covenant.

Third, the board should examine incentives. The operations director may favor expansion because it increases departmental size and status. This does not prove improper conduct, but it demonstrates why independent analysis and board challenge are necessary.

Fourth, stakeholders should be considered. The project may benefit customers through better quality, employees through improved skills, owners through higher value, and the community through lower energy consumption. Conversely, automation may reduce some jobs, and excessive borrowing may endanger suppliers and lenders.

Approach and solution

The finance manager recommends that the board:

1. approve the project only if its risk-adjusted value remains positive under reasonable downside scenarios;
2. finance part of the investment with retained earnings to reduce fixed debt obligations;
3. negotiate flexible loan covenants and a repayment schedule aligned with expected cash flows;
4. establish an independent project committee including finance, operations, and risk personnel;
5. require monthly monitoring of demand, cost savings, liquidity, and covenant compliance; and
6. disclose material assumptions and conflicts of interest to the board.

Outcome

In the illustrative outcome, the board delays full implementation and authorizes a pilot installation. The pilot confirms most of the expected quality improvements but produces lower-than-expected cost savings. The revised project is smaller and financed with a more balanced mix of retained earnings and debt. Meridian avoids excessive leverage while retaining the strategic benefits of automation.

Learning points

The case demonstrates that financial management is not simply a search for the lowest financing cost or the highest projected profit. It requires integrated consideration of investment cash flows, risk, governance, stakeholder effects, incentives, and implementation controls.

11. Challenges and Limitations

Financial management decisions are subject to uncertainty and judgment. Forecasts may be affected by optimism, incomplete data, changing regulation, competition, inflation, technological disruption, or behavioral bias. Present-value models can create an appearance of precision even when assumptions are fragile.

A narrow focus on measurable financial returns may overlook human rights, environmental harm, organizational culture, or distributional effects. Conversely, an overly broad objective may make accountability difficult if managers cannot explain how competing goals were prioritized.

Governance systems also have limitations. Independent directors may lack information, audits are based on sampling and professional judgment, controls can be overridden by senior managers, and incentive systems may produce unintended behavior. Effective governance therefore requires continuous review rather than reliance on a single safeguard.

Best-Practice Principles

Financial managers should:

• focus on long-term value rather than short-term numerical targets;
• distinguish accounting profit from cash flow;
• make assumptions explicit and test downside scenarios;
• match financing duration to asset and cash-flow characteristics;
• maintain adequate liquidity and covenant headroom;
• identify and disclose conflicts of interest;
• protect confidential and personal data;
• use independent challenge for significant decisions;
• align incentives with sustainable performance; and
• document decisions so that they can be reviewed and learned from.

Chapter Summary

Financial management concerns the acquisition, allocation, and control of financial resources. Its major decisions involve investment, financing, working capital, risk management, planning, and control. Accounting provides essential information, but financial management uses that information to make future-oriented decisions.

For a corporation, long-term shareholder wealth maximization is a central financial objective, although sustainable value depends on relationships with employees, customers, lenders, suppliers, communities, regulators, and the environment. Profit maximization alone is inadequate because it may ignore cash-flow timing, risk, required investment, and broader consequences.

Sole proprietorships, partnerships, corporations, cooperatives, and social enterprises differ in liability, ownership, governance, financing capacity, and continuity. Agency theory explains conflicts that arise when decision authority is delegated. Manager–shareholder, controlling–minority shareholder, and shareholder–lender conflicts are intensified by information asymmetry and costly monitoring.

Fiduciary duties require care, competence, loyalty, good faith, confidentiality, and proper use of authority. Corporate governance mechanisms—including boards, committees, internal controls, audits, disclosure, and incentive systems—help align interests and protect organizational resources. Financial managers combine technical, analytical, ethical, communication, and technological skills to support value-creating decisions under uncertainty.

Key Terms

Finance function: Organizational activity concerned with obtaining, allocating, and controlling financial resources.

Investment decision: Decision about which assets, projects, or strategic opportunities to undertake.

Financing decision: Decision about the sources and structure of funds used by an organization.

Working capital: Short-term operating investment represented broadly by current assets and current liabilities.

Liquidity: Ability to meet financial obligations as they fall due.

Shareholder wealth maximization: Objective of increasing the long-term economic value of owners’ investment.

Stakeholder: Party that affects or is affected by an organization.

Sole proprietorship: Business owned and operated by one individual.

Partnership: Business formed by two or more persons who agree to conduct activities together.

Corporation: Separate legal entity whose ownership is represented by shares or equivalent interests.

Limited liability: Legal principle generally limiting an owner’s loss to the amount invested.

Agency theory: Theory explaining delegated relationships between principals and agents.

Principal: Party that delegates authority to another party.

Agent: Party authorized to act on behalf of a principal.

Information asymmetry: Situation in which one party has more or better information than another.

Fiduciary duty: Obligation to act with loyalty, care, good faith, and proper purpose for another’s benefit or for the organization’s interests.

Corporate governance: System by which an organization is directed, controlled, and held accountable.

Internal control: Policy or procedure designed to safeguard assets, support reliable information, and promote compliance.

Financial manager: Professional responsible for financial planning, investment, financing, liquidity, risk, and control decisions.

Review Questions

Short Answer Questions

1. What are the three central categories of financial management decisions?
2. Why is accounting profit not identical to cash flow?
3. State two advantages and two limitations of incorporating a business.
4. What is information asymmetry?
5. Identify two mechanisms used to reduce agency conflicts.

Long Answer Questions

1. Explain why shareholder wealth maximization is generally considered superior to short-term profit maximization as a financial objective.
2. Compare sole proprietorships, partnerships, and corporations with respect to ownership, liability, financing, and continuity.
3. Explain agency theory and discuss three different principal–agent conflicts.
4. Describe the fiduciary duties of directors and senior financial managers.
5. Explain how boards, internal controls, external audits, disclosure, and incentives contribute to corporate governance.

Analytical / Application Questions

1. A company has strong reported profits but repeatedly struggles to pay suppliers. Analyze the possible causes and recommend financial-management actions.
2. A manager proposes a high-risk expansion that could substantially increase shareholder returns but may threaten loan covenants. Explain how the board and financial manager should evaluate the proposal.
3. An organization plans to use an artificial-intelligence forecasting system for investment decisions. Analyze the benefits, risks, governance requirements, and human responsibilities involved.

Multiple Choice Questions with Answers

Question 1

Which activity is most directly associated with a financing decision?

A. Selecting a new production machine

B. Determining the mix of debt and equity used to fund operations

C. Setting the reorder level for inventory

D. Auditing the annual financial statements

Correct Answer: B. Determining the mix of debt and equity used to fund operations

Question 2

Why is short-term profit maximization an incomplete financial objective?

A. Profit can never be measured reliably

B. It ignores timing, risk, investment requirements, and cash-flow differences

C. Shareholders are not interested in financial performance

D. Profit and revenue are always identical

Correct Answer: B. It ignores timing, risk, investment requirements, and cash-flow differences

Question 3

Which organizational form generally has a separate legal identity from its owners?

A. Sole proprietorship

B. General partnership

C. Corporation

D. Informal association

Correct Answer: C. Corporation

Question 4

In agency theory, managers of a corporation are commonly described as the:

A. Principals of the shareholders

B. Agents of the shareholders

C. Auditors of the lenders

D. Regulators of the board

Correct Answer: B. Agents of the shareholders

Question 5

Which situation is an example of moral hazard?

A. An investor lacks information about a company before buying shares

B. A borrower takes greater risks after receiving a loan because the lender cannot fully observe its actions

C. A customer compares two products before purchase

D. A company publishes audited financial statements

Correct Answer: B. A borrower takes greater risks after receiving a loan because the lender cannot fully observe its actions

Question 6

Which duty requires a decision-maker to disclose and manage personal interests that conflict with organizational interests?

A. Duty of loyalty

B. Duty to maximize sales volume

C. Duty to minimize all borrowing

D. Duty to avoid delegation

Correct Answer: A. Duty of loyalty

Question 7

What is the principal purpose of segregation of duties?

A. To ensure every employee performs the same task

B. To prevent one person from controlling and concealing an entire transaction

C. To eliminate the need for external audits

D. To increase the organization’s tax rate

Correct Answer: B. To prevent one person from controlling and concealing an entire transaction

Question 8

If current assets are $800,000 and current liabilities are $550,000, net working capital is:

A. $250,000

B. $350,000

C. $1,350,000

D. −$250,000

Correct Answer: A. $250,000

Question 9

In a present-value model, all else equal, a cash flow received later is generally worth:

A. More than the same cash flow received immediately

B. The same regardless of timing

C. Less than the same cash flow received sooner

D. Nothing if it is uncertain

Correct Answer: C. Less than the same cash flow received sooner

Question 10

Which governance mechanism primarily oversees financial reporting, internal controls, and the external audit relationship?

A. Marketing committee

B. Audit committee

C. Operations committee

D. Procurement committee

Correct Answer: B. Audit committee