The correct answer is: C. Credit purchases.
Related party transactions are those between a company and another party where one party has significant influence over the other. These transactions are often complex and may be difficult to understand. As a result, auditors must carefully examine related party transactions to ensure that they are recorded accurately and fairly in the financial statements.
Credit purchases are particularly susceptible to errors and misstatements, as they often involve complex agreements and terms. As a result, auditors will typically examine credit purchases very carefully when vouching related party transactions.
Vouching is the process of verifying the accuracy of accounting entries by tracing them back to the original source documents. This process helps to ensure that the entries are supported by evidence and that they have been recorded correctly.
When vouching related party transactions, auditors will typically review the following documents:
- Purchase orders
- Invoices
- Shipping documents
- Receiving reports
- Payment records
The auditor will also review the terms of the transaction, including the price, payment terms, and any other relevant conditions. The auditor will also consider whether the transaction is in the best interests of the company and whether it has been properly disclosed in the financial statements.
Related party transactions can be complex and difficult to understand. As a result, it is important for auditors to carefully examine these transactions to ensure that they are recorded accurately and fairly in the financial statements.