The Implications of the Similarity between Fraud Numbers and the Numbers in Financial Accounting Textbooks and Test Banks

2016 ◽  
Vol 1 (1) ◽  
pp. A1-A26 ◽  
Author(s):  
Mark J. Nigrini
Keyword(s):  
Data Availability ◽  
Financial Accounting ◽  
Accounting Students ◽  
Benford’S Law ◽  
Red Flags ◽  
Round Number ◽  
Benford's Law ◽  
Round Numbers ◽  
Dollar Amount ◽  
Journal Entries

ABSTRACT Accounting students learn financial accounting through examples. The examples in accounting textbooks, and the exam questions in the test banks, use round numbers excessively. After graduation, these individuals could be asked to audit client journal entries and to scan transactions to identify unusual items. They will be expected to realize that, in this context, those familiar round numbers are now red flags for fraud. This study reviews the auditing standards and the authoritative practice aids that state that inappropriate journal entries have characteristics that include round numbers and consistent ending digits. Four fraud schemes in which the investigation of the round numbers would have uncovered the frauds are then described. The realism of the numbers in accounting textbooks and test banks is then evaluated using Benford's Law, their round number frequencies, and their number duplications. This analysis finds that the first digits of the textbook numbers conform to Benford's Law, but the second digits do not. It also finds that textbooks frequently use numbers that are both large and round. The concluding discussion explains why round numbers might be used so often in accounting textbooks and includes recommendations aimed at remedying the round-number conundrum. Data Availability: The datasets were created by manually entering the textbook and test bank numbers into several spreadsheets. Each record in the final database includes the dollar amount, the chapter number, the page number, and a chapter-body or end-of-chapter-material indicator. The author will consider requests to share the data.

scholarly journals Detection of Anomalies in Accounting Data Using Benford’s Law: Evidence from India

2016 ◽  
Vol 4 (1) ◽  
pp. 123 ◽  
Author(s):  
Ramesh Chandra Das ◽  
Chandra Sekhar Mishra ◽  
Prabina Rajib
Keyword(s):  
Business Group ◽  
Financial Accounting ◽  
Benford’S Law ◽  
Accounting Data ◽  
Large Size ◽  
Indian Context ◽  
Fixed Assets ◽  
Benford's Law ◽  
Initial Results ◽  
Direct Tax

This study uses the financial accounting data to examine if they depart from Benford’s Law. Using large sample of Indian public listed companies, the study conducts an analysis of the “first digit analysis”, “second digit analysis”, and “first two digit analysis “of test variables such as total assets, receivables, fixed assets, property, plant and equipment, inventory, current assets, current liabilities, sales, selling and distribution expenses, cost of goods sold, cash, EBIT, direct tax, indirect tax. The initial results find that most of the variables have significant deviation from Benford’s Law distribution. Further analyses indicate that business group firms indulge more data anomalies than standalone firms and small size firms have more data anomalies than large size firms in Indian context.

Does Reading Case Responses and Using Graphic Organizers Enhance Accounting Students' Case Analyses?

2013 ◽  
Vol 29 (1) ◽  
pp. 149-168 ◽  
Author(s):  
Fred Phillips ◽  
Alecia Nagy
Keyword(s):  
Graphic Organizers ◽  
Case Analysis ◽  
Data Availability ◽  
Financial Accounting ◽  
Accounting Students ◽  
Instructional Interventions ◽  
Pedagogical Tools ◽  
Materials Used ◽  
Key Aspects ◽  
Case Response

ABSTRACT This study investigates whether reading case responses and using graphic organizers can assist students in developing case analysis skills, such as identifying supporting arguments and counterarguments in analyses of financial accounting policy choices. The results of an experiment indicate that students who studied an exemplar case response were better able to identify supporting arguments in a subsequent case analysis. In contrast, students who used a graphic organizer to visualize elements of the exemplar case response were better able to identify the absence of counterarguments, which provide support for alternative accounting choices, in a subsequent case analysis. The effects of these pedagogical tools were apparent not only when students evaluated others' case analyses, but also when they generated their own analyses of a subsequent case. These results are significant because they suggest that short (11-minute) instructional interventions can encourage students to adopt two key aspects of critical thinking: identifying and generating relevant arguments and counterarguments. Data Availability: The data and experimental materials used in this study are available on request from the corresponding author.

Benford's Law: Analyzing a Decade of Financial Data

2013 ◽  
Vol 10 (1) ◽  
pp. 1-39 ◽  
Author(s):  
Fatima A. Alali ◽  
Silvia Romero
Keyword(s):  
Discretionary Accruals ◽  
Financial Data ◽  
Financial Accounting ◽  
Benford’S Law ◽  
Public Companies ◽  
Accounting Data ◽  
Large Sample ◽  
Big 4 ◽  
Benford's Law

ABSTRACT This study uses a decade of financial accounting data to examine if and how they depart from Benford's Law. Using a large sample of U.S. public companies, we conduct an analysis of the first-two digits of data items generally used in research to measure total accruals and discretionary accruals and where fraud, restatements, and enforcement actions are revealed. We break down a decade of data into six subperiods; pre-SOX Period (2001), SOX 1 Period (2002–2003), SOX 2 Period (2004–2006), SOX 3 Period (2007), Crisis 1 Period (2008), and Crisis 2 Period (2009–2010). We find different indicators of manipulation during the periods studied, as well as differences between small and big companies and companies audited by Big 4 and non-Big 4 firms.

A Case Study of Fraud Concerns at a Homeowners' Association

2015 ◽  
Vol 32 (1) ◽  
pp. 67-77 ◽  
Author(s):  
Constance M. Lehmann ◽  
Cynthia D. Heagy
Keyword(s):  
Information Systems ◽  
Accounting Information ◽  
Data Availability ◽  
Financial Accounting ◽  
Red Flags ◽  
Accounting Information Systems ◽  
Homeowners Association ◽  
Risk Areas ◽  
Fraudulent Activity

ABSTRACT This case is based on a series of actual events in a local homeowners' association (HOA). Instructors teaching fraud detection in their courses often use historical cases in which the “answer” to whether fraud has been committed is known. This case is unique because it is based on real incidents that occurred in an HOA. The case starts with the inception of the HOA up to the present, at which time the situation is still evolving. Students are required to recognize the conditions that increase the potential for fraudulent activity in an organization. Then they must analyze the activities in this particular association to identify the “red flags” that indicate that fraudulent activity could occur. Finally, students must develop recommendations to mitigate the identified risk areas. After completing this case, students will be more aware of potential and actual incidents of fraudulent activity and be able to address how these incidents can be prevented. This knowledge will benefit them in any area of accounting they choose to pursue. This case can be used in fraud examination, auditing, accounting information systems, and financial accounting classes. Data Availability: Data available from first author.

Benfordʼs Law as a Bridge between Statistics and Accounting

Benford's Law ◽  
2015 ◽  
Author(s):  
Richard J. Cleary ◽  
Jay C. Thibodeau
Keyword(s):  
Statistics Education ◽  
Point Of View ◽  
Accounting Students ◽  
Benford’S Law ◽  
Statistical Point ◽  
Accounting Practice ◽  
Current State ◽  
Key Concepts ◽  
Benford's Law

This chapter explores the connections between statistics and accounting through Benford's law and considers the questions of when and how to effectively deliver this material in such a way that Benford's law can be a tool that helps accountants make stronger and more efficient decisions using sound statistical practice. It looks at the current state of statistics education for accounting students and presents some of the ways in which accounting practice, particularly in auditing, can benefit from a statistical point of view. The chapter then demonstrates how Benford's law can be used to reinforce the key concepts that appear at the intersection of ideas from statistics and accounting. Finally, the chapter concludes with some suggestions for how to effectively incorporate Benford's law into the curriculum.

Fact and Fiction in EU-Governmental Economic Data

2011 ◽  
Vol 12 (3) ◽  
pp. 243-255 ◽  
Author(s):  
Bernhard Rauch ◽  
Max Göttsche ◽  
Stefan Engel ◽  
Gernot Brähler
Keyword(s):  
Financial Accounting ◽  
Benford’S Law ◽  
The European Union ◽  
Accounting Data ◽  
Eu Member States ◽  
Government Accounting ◽  
Growth Pact ◽  
Benford's Law ◽  
The Stability

Abstract To detect manipulations or fraud in accounting data, auditors have successfully used Benford’s law as part of their fraud detection processes. Benford’s law proposes a distribution for first digits of numbers in naturally occurring data. Government accounting and statistics are similar in nature to financial accounting. In the European Union (EU), there is pressure to comply with the Stability and Growth Pact criteria. Therefore, like firms, governments might try to make their economic situation seem better. In this paper, we use a Benford test to investigate the quality of macroeconomic data relevant to the deficit criteria reported to Eurostat by the EU member states. We find that the data reported by Greece shows the greatest deviation from Benford’s law among all euro states.

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