Final answer:
The auditing procedure that most likely assists in identifying related party transactions is reviewing accounting records for nonrecurring transactions recognized near the balance sheet date. Option C is correct answer.
Step-by-step explanation:
The question is asking which auditing procedure would most likely help an auditor identify transactions with related parties. Identifying related party transactions is crucial as they can lead to misstatements in the financial records due to their non-arms-length nature. Out of the options provided, the one most pertinent to identifying related party transactions is:
C. reviewing accounting records for nonrecurring transactions recognized near the balance sheet date.
This procedure is effective because related parties might engage in transactions that do not occur in the normal course of business and are carried out to fulfill specific objectives, such as income manipulation, tax avoidance, or concealing financial problems. Transactions near the balance sheet date are particularly susceptible to such manipulations. Reviewing these transactions provides an opportunity to determine whether their nature, timing, or terms suggest involvement with related parties.
In contrast, option A focuses on confirming the existence of accounts receivable, while option B involves looking for contingent liabilities and option D is about assessing the effectiveness of internal controls. These procedures have other primary objectives and are less direct in identifying related party transactions.