Choice "C" is correct. Compensating balance arrangements may be maintained by or for related parties.
Choice "a" is incorrect. Performing tests of controls concerning the segregation of duties relates to the allocation of responsibilities among company employees; related party transactions typically relate to transactions with affiliates, owners, or management.
Choice "d" is incorrect. Evaluating the reasonableness of management's accounting estimates would not provide any evidence of transactions with affiliates, owners, or management.
Choice "b" is incorrect. Related party transactions are more likely to be nonrecurring than recurring.