scholarly journals Applying Benford’s Law to Examine the Quality of Reported Income Numbers of Unlisted Firms

2015 ◽  
Vol 7 (12) ◽  
pp. 211
Author(s):  
Sudershan Kuntluru ◽  
Rachappa Shette ◽  
Achalapathi K.V.
Keyword(s):  
Scenario Analysis ◽  
Listed Companies ◽  
Benford’S Law ◽  
Annual Income ◽  
Empirical Results ◽  
Benford's Law ◽  
Unlisted Firms ◽  
Reported Income

<p>The present study makes an attempt to examine the quality of reported income numbers of unlisted firms in India. The Benford’s Law is applied to examine the digital occurrence of reported income numbers of unlisted firms. The analysis is based on 43,996 reported annual income numbers of 22,147 sample firms during the financial years from 2000-01 to 2011-12. Further, the results are analyzed under four different scenarios viz., ownership, size, age and nature of industry. The empirical results show that the observed proportionate occurrence of zero is significantly less than the expected proportionate occurrence. These results are contrary to the findings of the related studies of listed companies. The results indicate lower quality of reported income numbers of unlisted firms. Based on the scenario analysis, the empirical results indicate that the proportionate occurrence of second single digits of state-owned unlisted firms confirm the Benford’s Law. The present study contributes to the literature by examining the quality of reported income numbers of unlisted firms using the Benford’s Law.</p>

Reading Russian Tea Leaves: Assessing the Quality of Bank Financial Statements with the Benford Distribution

2016 ◽  
Vol 19 (04) ◽  
pp. 1650021 ◽  
Author(s):  
Denis Davydov ◽  
Steve Swidler
Keyword(s):  
Reporting Quality ◽  
Financial Statements ◽  
Benford’S Law ◽  
Bank Failures ◽  
Recent Experience ◽  
Net Income ◽  
Balance Sheets ◽  
Detection Algorithms ◽  
Benford's Law

Benford’s Law, a rule concerning first digits of an array of numbers, has frequently been used to test for the reporting quality of financial statements. When applied to the recent experience for Russian banks, one conclusion is that the 2004 regime shift in accounting standards produced higher quality financial statements. Prior to 2004, the Benford evidence suggests that Russian banks tended to round revenues up, expenses down and thus overstate net income. It also appears that banks may have presented stronger balance sheets than warranted. In the second part of the analysis, the practical use of Benford’s Law to discern a looming bank failure appears limited. While there is, perhaps, some beneficial information to be drawn from testing for Benford distribution conformity, in isolation the tests for financial statement manipulation are inconclusive. Instead, Benford might be used with other early warning detection algorithms to recognize impending bank failures.

scholarly journals Are COVID-19 Data Reliable? A Quantitative Analysis of Pandemic Data from 182 Countries

COVID ◽  
2021 ◽  
Vol 1 (1) ◽  
pp. 137-152
Author(s):  
Noah Farhadi ◽  
Hooshang Lahooti
Keyword(s):  
Reliable Data ◽  
Benford’S Law ◽  
Global Health Security ◽  
Quality Of Data ◽  
Health Security ◽  
The Past ◽  
Six Nations ◽  
Benford's Law ◽  
The Uk

When it comes to COVID-19, access to reliable data is vital. It is crucial for the scientific community to use data reported by independent territories worldwide. This study evaluates the reliability of the pandemic data disclosed by 182 countries worldwide. We collected and assessed conformity of COVID-19 daily infections, deaths, tests, and vaccinations with Benford’s law since the beginning of the coronavirus pandemic. It is commonly accepted that the frequency of leading digits of the pandemic data shall conform to Benford’s law. Our analysis of Benfordness elicits that most countries partially distributed reliable data over the past eighteen months. Notably, the UK, Australia, Spain, Israel, and Germany, followed by 22 different nations, provided the most reliable COVID-19 data within the same period. In contrast, twenty-six nations, including Tajikistan, Belarus, Bangladesh, and Myanmar, published less reliable data on the coronavirus spread. In this context, over 31% of countries worldwide seem to have improved reliability. Our measurement of Benfordness moderately correlates with Johns Hopkin’s Global Health Security Index, suggesting that the quality of data may depend on national healthcare policies and systems. We conclude that economically or politically distressed societies have declined in conformity to the law over time. Our results are particularly relevant for policymakers worldwide.

scholarly journals Do the Financial Statements of Listed Companies on the Ljubljana Stock Exchange Pass the Benford’s Law Test?

2018 ◽  
Vol 12 (1) ◽  
pp. 54
Author(s):  
Natasa Omerzu ◽  
Iztok Kolar
Keyword(s):  
Stock Exchange ◽  
Financial Statements ◽  
Listed Companies ◽  
Financial Data ◽  
Theoretical Distribution ◽  
Benford’S Law ◽  
Digital Analysis ◽  
Accounting Data ◽  
Benford's Law ◽  
Long Time

Currently, we need to think about the risks in using the financial statements. Abroad, for a long time, in the detection of irregularities in the financial statements, Benford&#39;s law test has been used, which is a very simple, objective and efficient digital analysis that can help identify controversial areas. Since, in Slovenia, its use is still unknown and in practice, and it is rarely used, we checked whether the financial statements of Slovenian companies listed on the Ljubljana Stock Exchange pass the Benford&rsquo;s law test. Our study is original, as no one has ever tested the company&#39;s financial statements on the Ljubljana Stock Exchange with this test. We found that the tested data very well matched the theoretical distribution according to Benford&#39;s law. If the deviation of the analysed data from the theoretical distribution is very large, this does not mean that this is a possible fraud in the used financial data. Benford&#39;s law helps us identify the controversial areas that require our attention and the decision on how to proceed with the audit or possible investigation of accounting data.

scholarly journals Is conditional conservatism a source of deviations of financial statements from Benford's Law?

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tri Tri Nguyen ◽  
Chau Minh Duong ◽  
Nguyet Thi Minh Nguyen
Keyword(s):  
Financial Distress ◽  
Stock Exchange ◽  
Listed Companies ◽  
Financial Statement ◽  
Benford’S Law ◽  
Assessment Procedure ◽  
Specific Level ◽  
Content Type ◽  
Conditional Conservatism ◽  
Benford's Law

PurposeIn this paper, the authors examine the association between conditional conservatism and deviations of the first digits of financial statement items from what are expected by Benford's Law.Design/methodology/approachThis research uses data of companies listed on the London Stock Exchange. The authors measure deviations of first digits from Benford's Law following Amiram et al. (2015) and firm-year conditional conservatism following previous studies (Basu, 1997; Khan and Watts, 2009; García Lara et al., 2016). The authors use multiple regressions to provide evidence for their hypothesis.FindingsThe results show that conditional conservatism is positively associated with deviations from Benford's Law. The findings are robust across different measures of deviations and conditional conservatism. Also, the authors find that the relationship between deviations from Benford's Law and conditional conservatism is more pronounced for firms with debt issuance, and for leveraged firms facing financial distress. Next, the authors’ analyses confirm previous evidence by showing that the first digits of financial statement items of UK listed companies conform to Benford's Law at the firm-specific level and the market level, and deviations of income statements are larger than those of balance sheets and cash flow statements.Research limitations/implicationsThe research makes significant contributions to the literature. First, this is the first study that provides empirical evidence suggesting that conditional conservatism may be a source of deviations from Benford’s Law. Second, the authors provide evidence confirming previous US findings (e.g. Amiram et al., 2015) showing that the distributions of first digits of financial statement items of UK listed companies also conform to Benford's Law.Practical implicationsThe authors’ findings have implications for auditors. Auditors should be aware of “false positive” for material misstatements when using Benford's Law as a risk assessment procedure. While both conditional conservatism and earnings management are related to deviations from Benford's Law, conservatism-related biases could indicate less audit risks.Originality/valueThe authors provide new and original evidence suggesting that conditional conservatism is related to deviations from Benford's Law.

scholarly journals No-Reference Video Quality Assessment Based on Benford’s Law and Perceptual Features

Electronics ◽  
2021 ◽  
Vol 10 (22) ◽  
pp. 2768
Author(s):  
Domonkos Varga
Keyword(s):  
Quality Assessment ◽  
Video Quality ◽  
Perceptual Quality ◽  
Benford’S Law ◽  
Original Video ◽  
Video Quality Assessment ◽  
Volume Data ◽  
Digital Videos ◽  
Benford's Law

No-reference video quality assessment (NR-VQA) has piqued the scientific community’s interest throughout the last few decades, owing to its importance in human-centered interfaces. The goal of NR-VQA is to predict the perceptual quality of digital videos without any information about their distortion-free counterparts. Over the past few decades, NR-VQA has become a very popular research topic due to the spread of multimedia content and video databases. For successful video quality evaluation, creating an effective video representation from the original video is a crucial step. In this paper, we propose a powerful feature vector for NR-VQA inspired by Benford’s law. Specifically, it is demonstrated that first-digit distributions extracted from different transform domains of the video volume data are quality-aware features and can be effectively mapped onto perceptual quality scores. Extensive experiments were carried out on two large, authentically distorted VQA benchmark databases.

Measuring the Quality of European Statistics

Benford's Law ◽  
2015 ◽  
Author(s):  
Bernhard Rauch ◽  
Max Göttsche ◽  
Gernot Brähler ◽  
Stefan Engel
Keyword(s):  
Financial Data ◽  
Benford’S Law ◽  
Data Set ◽  
The Social ◽  
Benford's Law ◽  
Social Statistics ◽  
Government Deficit ◽  
Deficit Spending ◽  
European Statistics

This chapter analyzes Greek statistics which are not relevant to government deficit spending and compare the findings with the results of prior research, which had shown a significant deviation from Benford's law of the first digits distribution of Greek financial statistics. The hypothesis here is that the social data set should conform better with Benford's law than the financial data set, as the incentive for manipulation is lower. However, the results in this chapter show that, in contrast to their financial data, the Greek social statistics data have a good fit with Benford's law. The chapter interprets this outcome as a sign for the effectiveness of the Benford test.

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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