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Benford Foils Book Cooking

Researchers applied Benford's Law to public companies—with interesting results.

As Forbes reports,

Companies whose financial statements were significantly out of compliance with the law were far more likely to get caught by the Securities and Exchange Commission for accounting irregularities. And when companies restated their earnings, a before-and-after comparison showed that the new, real numbers complied with Benford’s Law while the old ones didn’t.

Benford’s Law has been used in forensic applications—to detect voter fraud, for instance, and to determine whether digital photographs have been altered—and has been used by auditors for years. The paper by Dan Amiram, Zahn Bozanic, and Ethan Rouen is the first to apply the law to company-level financial reports accessible through databases like Compustat.

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Start Date: 
Wednesday, June 18, 2014