Proceedings of the 5th International Conference on Accounting, Auditing, and Taxation (ICAAT 2016)

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

Authors
Mihkel Tammaru, Lehte Alver
Corresponding Author
Mihkel Tammaru
Available Online December 2016.
DOI
https://doi.org/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.
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Proceedings
5th International Conference on Accounting, Auditing, and Taxation (ICAAT 2016)
Part of series
Advances in Economics, Business and Management Research
Publication Date
December 2016
ISBN
978-94-6252-261-9
ISSN
2352-5428
DOI
https://doi.org/10.2991/icaat-16.2016.46How to use a DOI?
Open Access
This is an open access article distributed under the CC BY-NC license.

Cite this article

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  - 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  - https://doi.org/10.2991/icaat-16.2016.46
ID  - Tammaru2016/12
ER  -