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York, D (2000)

Auditing Technique - Benfordís law

Accountancy 126(1283), 126.

ISSN/ISBN: Not available at this time. DOI: Not available at this time.



Abstract: Benford's law, sometimes known as the "first digit phenomenon," predicts the frequency with which digits occur in certain naturally-occurring numbers, including many in accounting. To make practical use of Benford's law in analytical procedures, auditors have to understand which populations can be expected to obey it. Although Benford trends can be seen in populations as small as, say, the numbers of accounts in a trial balance or the figures in a published set of accounts, a close fit can only be expected to emerge as population numbers rise into the thousands. However, Benford's law is "scale-invariant," which means, in accounting terms, that it does not matter whether the figures are in pounds sterling or another currency. To exhibit Benford characteristics, a population should not be "governed" by other, simpler "laws." A Benford investigation can show up fraud or error that might escape traditional methods. If your audit manual doesn't cover this cost-effective technique, perhaps it is now out of date. Most accounting software is capable of exporting data in a format that can be imported into a spreadsheet (e.g. comma separated).


Bibtex:
@article {, AUTHOR = {York, David}, TITLE = {Auditing Technique - Benford's law}, JOURNAL = {Accountancy}, YEAR = {2000}, VOLUME = {126}, NUMBER = {1283}, }


Reference Type: Journal Article

Subject Area(s): Accounting