Testing for Benford's Law: A Monte Carlo Comparison of Methods

2014 ◽  
Author(s):  
Dieter William Joenssen
Keyword(s):  
Monte Carlo ◽  
Benford’S Law ◽  
Comparison Of Methods ◽  
Benford's Law

scholarly journals Some New Tests of Conformity with Benford’s Law

Stats ◽  
2021 ◽  
Vol 4 (3) ◽  
pp. 745-761
Author(s):  
Roy Cerqueti ◽  
Claudio Lupi
Keyword(s):  
Monte Carlo ◽  
Monte Carlo Simulations ◽  
Explicit Representation ◽  
Asymptotic Distributions ◽  
Benford’S Law ◽  
Test Statistics ◽  
Target Distribution ◽  
Benford's Law ◽  
Novel Devices

This paper presents new perspectives and methodological instruments for verifying the validity of Benford’s law for a large given dataset. To this aim, we first propose new general tests for checking the statistical conformity of a given dataset with a generic target distribution; we also provide the explicit representation of the asymptotic distributions of the relevant test statistics. Then, we discuss the applicability of such novel devices to the case of Benford’s law. We implement extensive Monte Carlo simulations to investigate the size and the power of the introduced tests. Finally, we discuss the challenging theme of interpreting, in a statistically reliable way, the conformity between two distributions in the presence of a large number of observations.

scholarly journals Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation

2019 ◽  
Vol 69 (2) ◽  
pp. 217-239
Author(s):  
Vladan Pavlović ◽  
Goranka Knežević ◽  
Marijana Joksimović ◽  
Dušan Joksimović
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Frequency Distribution ◽  
High Probability ◽  
Financial Statements ◽  
Financial Statement ◽  
Benford’S Law ◽  
Financial Reports ◽  
Benford's Law ◽  
Very High

Benford's Law is a useful tool for detecting fraud in financial statements. In this paper we test the financial item named ‘Work performed by the undertaking for its own purpose and capitalised’ applying this tool. The data are taken from the financial reports of all companies submitted to the Serbian Business Register Agency for the period of 2008–2013. Our conclusion shows that there is a very high probability that the frequency distribution of the second digit does not satisfy Benford's Law. In other words, it implies that certain manipulations have been usually done with the second digit of the aforementioned item in the financial statement. This research confirms our hypothesis that financial statement frauds are usually conducted using the second digit.

scholarly journals Reliability of Financial Information from the Perspective of Benford’s Law

Entropy ◽  
2021 ◽  
Vol 23 (5) ◽  
pp. 557
Author(s):  
Ionel Jianu ◽  
Iulia Jianu
Keyword(s):  
Financial Reporting ◽  
Capital Market ◽  
Financial Statements ◽  
Financial Information ◽  
Benford’S Law ◽  
Professional Judgment ◽  
Reporting Standards ◽  
Financial Reporting Standards ◽  
Benford's Law ◽  
Before And After

This study investigates the conformity to Benford’s Law of the information disclosed in financial statements. Using the first digit test of Benford’s Law, the study analyses the reliability of financial information provided by listed companies on an emerging capital market before and after the implementation of International Financial Reporting Standards (IFRS). The results of the study confirm the increase of reliability on the information disclosed in the financial statements after IFRS implementation. The study contributes to the existing literature by bringing new insights into the types of financial information that do not comply with Benford’s Law such as the amounts determined by estimates or by applying professional judgment.

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