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Using Benford's Law to reveal journal entry irregularities

Journal of Accountancy, 2022-09, Vol.233 (9), p.1-11

Copyright American Institute of Certified Public Accountants Sep 2022 ;ISSN: 0021-8448 ;EISSN: 1945-0729

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  • Title:
    Using Benford's Law to reveal journal entry irregularities
  • Author: Nigrini, Mark J
  • Subjects: Auditors ; Audits ; Conformity ; Data analysis ; Fraud ; Population
  • Is Part Of: Journal of Accountancy, 2022-09, Vol.233 (9), p.1-11
  • Description: Benford's Law can help uncover indicators of fraud - and anomalies that arise from legitimate business practices. (View an instructional video (/content/dam/jofa/issues/2022/sep/benfords-law-journal-entry-irrequlahties-video.mp4) on Benford's Law-based journal entry testing and download an Excel spreadsheet (https://www.journalofaccountancy.com/content/dam/jofa/issues/2022/sep/benfords-law-runs-test-excel-spreadsheet.xlsx) that can be used to prepare the first-two digits graph, and to calculate the number of runs, spikes, and the mean absolute deviation.) Benford's Law-based journal entry testing Benford's Law-based testing could direct auditors to large counts of journal entries that are below their testing threshold, which could be an indicator of a certain type of fraud mechanism. [...]a first-digit test will give audit samples that are large and inefficient. In Part 1 of the figure "Authentic Journal Entries With Added Fictitious Amounts," a ridge has formed from 20 to 50, a ridge being a range in the graph where the actual proportions are (mostly) above the Benford's Law line.
  • Publisher: New York: American Institute of Certified Public Accountants
  • Language: English
  • Identifier: ISSN: 0021-8448
    EISSN: 1945-0729
  • Source: Alma/SFX Local Collection
    ProQuest Central
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