Choice "A" is correct. Failure to properly capitalize leases that the accountant considers material to the financial statements is a departure from GAAP. If management will not capitalize the leases, the accountant should modify the standard review report or withdraw from the engagement. If modification to the report is sufficient to disclose the departure from GAAP, then the accountant may modify the review report.
Choice "d" is incorrect. An opinion is not issued with a review report. Instead, the report may be modified to disclose the departure from GAAP.
Choice "b" is incorrect. The accountant may still provide limited assurance with respect to the entity's financial statements in the review report, as long as the departures from GAAP are disclosed. The third paragraph of the review report would read, "Based on my review, with the exception of the matter described in the following paragraph, I am not aware of any material modifications…"
Choice "c" is incorrect. There is no need for the auditor to restrict the use of the financial statements.