Using Benford's Law to Determine Financial Statement Accuracy 

Because of the nature of growth, financial statement data follows Benford's Law. Consequently, we can use Benford's Law to detect errors and intentional misinformation in financial statements. A Kolmogorov-Smirnov Test is a way of measuring of how different a company's financial statements are from the expected Benford distribution, and companies that fail the test are more likely to have reported issues with their financial statements. Benford's Law is an observation about the frequency distribution of the leading digit in numerical data sets. In many data sets, 1 appears as the leading digit about 30.10% of the time, while 9 appears as the leading digit about 4.58% of the time. If the frequency distribution was uniform or random, each digit would appear 11.11% of the time. #distributions #frequencies #dataanalytics #datascience #datasets #numerology #bigdata #analytics #data #cfainstitute #fraud #compliance #fraudprevention #financialstatements