Benford's law

Another approach to examine earnings management is Benford's Law. Digits are not uniformly distributed in naturally occurring, unrestricted data.

Berger: Multi-dimensional dynamical systems and Benford's law, Discrete Contin.

If the percentage of occurrence does not coincide with Benford's Law for a certain leading digit, then this is an indicator of defective input quality; the forecaster should look again at all of the data inputs having that leading digit and perhaps re-contact certain associated customers.

One of my favorites is "Godwin's Law"--"The longer an argument drags on, the likelier someone will stoop to a Hitler or Nazi analogy." How about this, from your wife, after a long argument about you taking so much time fussing with your reloading gear: "You're such a Nazi when it comes to keeping your reloading stuff labeled." Which also crosses into Benford's Law, if you ask me.

Benford's Law says numeral frequency isn't random but follows numerical order, 1 being most and 9 least frequent, but it says nothing about their frequencies in text relative to the letters etc.

Keywords: financial accounting; auditing; cosmetic earnings management; institutional factors; Benford's law; national culture.

In addition to following the Statement of Auditing Standards, Lundy says his firm incorporates a healthy does of Benford's Law.

This study introduces and illustrates how Digital Analysis could be used as an analytical procedure.(1) Digital Analysis focuses on digit and number patterns, and is based on a mathematical phenomenon known as Benford's Law (Benford 1938).

Therefore, the objective of this study is to verify whether the conformity of public expenditures with Benford's Law (BL) relates to municipal transparency level, comparing two municipalities, one with greater and one with less transparency.

When would Benford's law be used in fraud analysis?

The second paper attempts to detect manipulation of financial reporting on expenditures using Benford's Law. Cella and Zanolla compare two cities, one with a low and another with a high level of transparency.

The second article, "Benford's Law in Appraisal," by Mark Pomykacz, MAI, AI-GRS, Chris Olmsted, and Katherine Tantinan, outlines the principles of Benford's Law and how they can be used to detect database anomalies, including data errors or manipulation.