CFE – Fraud Prevention and Deterrence — Question 45

XYZ, Inc. is a specialty retailer of high-end ergonomic office furniture. The company receives a very large order from ABC Company, a new customer in a different country that wants to pay on credit. Which of the following is MOST ACCURATE regarding the due diligence procedures XYZ should perform on ABC before proceeding with this transaction?

Answer options

• A. XYZ does not need to take any specific procedures to verify ABC’s identity before accepting the transaction
• B. XYZ only needs to undertake due diligence procedures if ABC conducts business in countries with known corruption risks
• C. XYZ should perform the same level of due diligence as it would for any other customer to avoid claims of discrimination
• D. XYZ should examine ABC’s net worth as part of deciding whether to allow the purchase on credit

Correct answer: D

Explanation

The correct answer is D, as evaluating ABC's net worth is crucial in assessing their creditworthiness and ability to fulfill the payment obligation. Option A is incorrect because due diligence is essential for any new customer, especially when credit is involved. Option B is wrong since due diligence should be conducted regardless of the country’s corruption risks. Option C, while promoting fairness, does not emphasize the importance of financial assessment in credit transactions.