What is the major risk of prospective financial statements? Why are CPA firms reluctant to offer…

What is the major risk of prospective financial statements? Why are CPA firms reluctant to offer assurance services for prospective financial statements? The following are miscellaneous questions about compilation and review services. Choose the best response.

a. A CPA is performing review services for a small, closely held manufacturing company. As a part of the follow-up of a significant decrease in the gross margin for the current year, the CPA discovers that there are no supporting documents for $40,000 of disbursements. The chief financial officer assures her that the disbursements are proper. What should the CPA do?

(1) Include the unsupported disbursements without further work in the statements on the grounds that she is not doing an audit.

 (2) Modify the review opinion or withdraw from the engagement unless the unsupported disbursements are satisfactorily explained.

(3) Exclude the unsupported disbursements from the statements.

(4) Obtain a written representation from the chief financial officer that the disbursements are proper and should be included in the current financial statements.

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