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Nigrini, MJ (2016)

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

Journal of Forensic Accounting Research, Vol. 1, No. 1, pp. A1-A26.

ISSN/ISBN: Not available at this time. DOI: 10.2308/jfar-51465



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.


Bibtex:
@article{, author = {Mark J. Nigrini}, title = {The Implications of the Similarity between Fraud Numbers and the Numbers in Financial Accounting Textbooks and Test Banks}, journal = {Journal of Forensic Accounting Research}, volume = {1}, number = {1}, pages = {A1--A26}, year = {2016}, doi = {10.2308/jfar-51465}, URL = { http://dx.doi.org/10.2308/jfar-51465}, }


Reference Type: Journal Article

Subject Area(s): Accounting