International Journal of Auditing and Accounting Studies 7(1), pp. 73-92.
ISSN/ISBN: Not available at this time. DOI: Not available at this time.
Abstract: Large data series collected over an extended period of time have a tendency toward conformity with Benford’s law in the first few digits. According to this law, the first digit in a group of more than 1,000 numbers is equivalent to 1 in 30.10% of cases, 2 in 17.60% of cases, with the probability of appearance logarithmically decreasing as the first digit increases This study details a straightforward yet effective audit procedure employed by a small accounting firm in an Argentinean provincial economy to identify mistakes and raise concerns about possible creative accounting by clients. Through this assurance procedure, the audit firm examines client- rovided data to determine whether Benford’s law is being followed. Excel spreadsheets’ automated features are employed for this. To illustrate the tool’s usefulness, the annual sales of three of the firm’s clients were examined. The findings indicate that every client has a distinct profile. Client 1 fully complies with Benford’s law, leading to an unqualified opinion in the auditor’s report; Client 2 continues to comply with Benford’s law but raises some concerns that should be discussed with management before issuing the audit opinion; and Client 3 exhibits low conformance and raises several red flags that require discussion with management. This work introduces granular data, which allows for the development of tenable hypotheses for the observed nonconformity, such as product mix and inflation.
Bibtex:
@article{,
author = {Carlos Daniel Milani and Nicolas Epelbaum},
title = {Using Benford’s Law to Detect Suspected Creative Accounting: A Simple Tool for Small Accounting Firms in Emerging Economies},
year = {2025},
journal = {International Journal of Auditing and Accounting Studies},
volume = {7},
number = {1},
pages = {73—92},
url = {https://www.arfjournals.com/ijaas/issue/377},
}
Reference Type: Journal Article
Subject Area(s): Accounting