Current Attempt in Progress

$*$ Incorrect. Related party transactions are required by GAAP to be disclosed and accounted for properly. Auditors are required to verify that GAAP requirements for related party transactions have been met. It is not necessary to verify that the transactions occurred on an arms'$-$length basis.

Weaver, CPA, is the senior accountant for the audit of Australian Skin Products, Inc., a nonissuer. Australian Skin Products buys most of its raw materials from a company owned by one of its board members. Which of the following correctly describes how this matter should be addressed?

The auditor should assume that the transaction is outside the ordinary course of business and plan to apply additional auditing procedures.

An emphasis$-$of$-$matter paragraph may be added to the audit report.

The auditor should obtain evidence to substantiate that the transaction was consummated on terms equivalent to an arm's$-$length transaction.

The board member should be interviewed to determine the extent of the member's involvement in purchasing decisions.