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Van Caneghem, T (2016)

NPO Financial Statement Quality: An Empirical Analysis Based on Benfordís Law

International Journal of Voluntary and Nonprofit Organizations 27(6), pp. 2685Ė2708.

ISSN/ISBN: Not available at this time. DOI: 10.1007/s11266-015-9629-4



Abstract: In order to assess the accuracy of the figures reported in NPOsí financial statements, I perform a digital analysis on Belgian non-profit organizationsí financial statements for accounting years 2007 up to 2012. Specifically, I compare observed frequencies for digits in the second-from-the-left position with expected frequencies based on Benfordís Law. Results based on the full sample indicate that observed frequencies strongly conform to Benfordís Law (and thus suggest a high degree of accuracy of the figures reported in NPOsí financial statements). Nevertheless, I note statistically significant deviations from Benfordís Law (both for the entire distribution and at the individual digit level). The largest deviation is noted for zeroes in the second position (i.e., a significantly positive deviation), which can be explained based on humansí reliance upon so-called cognitive reference points. Considering different sub-samples, I note that observed deviations from Benfordís Law are largest for the smallest non-profits and those non-profits that rely most heavily on grants and/or donations.


Bibtex:
@article{, author = {Van Caneghem, Tom}, year = {2016}, pages = {2685Ė-2708, title = {{NPO} Financial Statement Quality: An Empirical Analysis Based on {Benford's Law}}, journal = {{VOLUNTAS}: International Journal of Voluntary and Nonprofit Organizations}, volume = {27}, number = {6}, doi = {10.1007/s11266-015-9629-4} }


Reference Type: Journal Article

Subject Area(s): Accounting, Economics