10 year old touching

Hello everybody,
I am new here but I have a serious question to ask. Our 10 year old son had his friend over last Sunday and his 10 year old friend suggested to play "truth or dare". His friend immediately dared him to touch his penis as I walked in. They were under a blanket fully clothed but the friend had his pants down a couple of inches with the zipper down.
The parents are in full denial and he is a popular kid and could make his life hell, especially at school.
At ten years old, could this kid easily grow up to be a pedophile? Is he a risk for other kids?
My question is: Do we handle it ourselves, properly and within just our family or do the authorities need to be notified? We don't know if we should go to the guidance councilor at school or not either.
Please help, we don't know what we should do!
Dan

Kids experiment and test boundaries.
They are soon to enter in the adult world. You should start to treat them as adults, and give them the same sort of response that you would an adult doing the same thing.
This has nothing whatever to do with paedophilia..
Tell em off!
Give them both a lecture on appropriate behaviour.

"should we handle it ourselves?" err... are you kidding?
Hands Off!
Seriously though - yes as parents you have a duty of care to bring up your child to act as a responsible individual.
If you draw a blank with the other kid's parents then break off the friendship if the boy is doing stuff you think is wrong, but let you own child know exactly why.

As a responsible parent I assume that you have told your child all about sex, love and reproduction?
No time is too early. I was told as soon as I could speak. And I passed that on to my own son.

It's such a taboo subject - I would only concern myself if you think the other child is abusive, psychotic or in some way would hurt your child. And you should just explain and inform your own about private parts, sex, all that sort of stuff.

How can a 10 year old be a pedophile?