Application of Benford's Law for Fraud Detection in Financial Statements: Theoretical Review

DOI

10.2991/icaat-16.2016.46How to use a DOI?

Keywords

Financial statements, Benford's law, profit manipulation

Abstract

External auditors' ability to detect profit manipulations in the financial statements is limited. Non conformity with Benford's law gives indication of the risk that a data set contains fraud, but it does not give information which items are manipulated. Knowing profit and other financial targets set to the companies it is possible, treating profits deviation from Benford's law as probability, to identify potential financial statements with manipulated profits. In this field there has been a lot of research in different countries (New Zealand, USA, Finland, Japan, Germany and the others). The above-mentioned probability describing the profit manipulation risk would be very useful information for interested parties to decide whether identified financial statements require additional inspection. The aim of the current paper is to characterize Benford's law as tool for detecting financial statements with manipulated profits. The paper gives some ideas how to combine Benford's law and analytical tests.

Copyright

© 2016, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Mihkel Tammaru
AU  - Lehte Alver
PY  - 2016/12
DA  - 2016/12
TI  - Application of Benford's Law for Fraud Detection in Financial Statements: Theoretical Review
BT  - Proceedings of the 5th International Conference on Accounting, Auditing, and Taxation (ICAAT 2016)
PB  - Atlantis Press
SN  - 2352-5428
UR  - https://doi.org/10.2991/icaat-16.2016.46
DO  - 10.2991/icaat-16.2016.46
ID  - Tammaru2016/12
ER  -