Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation
Abstract
Benford’s Law is a useful tool for detecting fraud in financial statements. In this paper we test the
financial item named ‘Work performed by the undertaking for its own purpose and capitalised’
applying this tool. The data are taken from the financial reports of all companies submitted to the
Serbian Business Register Agency for the period of 2008–2013. Our conclusion shows that there is
a very high probability that the frequency distribution of the second digit does not satisfy Benford’s
Law. In other words, it implies that certain manipulations have been usually done with the second
digit of the aforementioned item in the financial statement. This research confirms our hypothesis
that financial statement frauds are usually conducted using the second digit.
Keywords:
Benford’s Law / income statement / auditing / financial fraud / Monte Carlo simulationSource:
Acta Oeconomica, 2019, 69, 2, 217-239Publisher:
- Budapest : Akadémiai Kiadó
Funding / projects:
- Organizational and information support to the quality management system as a key factor in improving the competitiveness of domestic enterprises and ensuring their faster access to world and EU markets (RS-MESTD-Basic Research (BR or ON)-179001)
- Optoelectronics nanodimension systems - the rout towards applications (RS-MESTD-Integrated and Interdisciplinary Research (IIR or III)-45003)
Collections
Institution/Community
JakovTY - JOUR AU - Pavlović, Vladan AU - Knežević, Goranka AU - Joksimović, Marijana AU - Joksimović, Dušan PY - 2019 UR - http://jakov.kpu.edu.rs/handle/123456789/1526 AB - Benford’s Law is a useful tool for detecting fraud in financial statements. In this paper we test the financial item named ‘Work performed by the undertaking for its own purpose and capitalised’ applying this tool. The data are taken from the financial reports of all companies submitted to the Serbian Business Register Agency for the period of 2008–2013. Our conclusion shows that there is a very high probability that the frequency distribution of the second digit does not satisfy Benford’s Law. In other words, it implies that certain manipulations have been usually done with the second digit of the aforementioned item in the financial statement. This research confirms our hypothesis that financial statement frauds are usually conducted using the second digit. PB - Budapest : Akadémiai Kiadó T2 - Acta Oeconomica T1 - Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation VL - 69 IS - 2 SP - 217 EP - 239 DO - 10.1556/032.2019.69.2.4 ER -
@article{ author = "Pavlović, Vladan and Knežević, Goranka and Joksimović, Marijana and Joksimović, Dušan", year = "2019", abstract = "Benford’s Law is a useful tool for detecting fraud in financial statements. In this paper we test the financial item named ‘Work performed by the undertaking for its own purpose and capitalised’ applying this tool. The data are taken from the financial reports of all companies submitted to the Serbian Business Register Agency for the period of 2008–2013. Our conclusion shows that there is a very high probability that the frequency distribution of the second digit does not satisfy Benford’s Law. In other words, it implies that certain manipulations have been usually done with the second digit of the aforementioned item in the financial statement. This research confirms our hypothesis that financial statement frauds are usually conducted using the second digit.", publisher = "Budapest : Akadémiai Kiadó", journal = "Acta Oeconomica", title = "Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation", volume = "69", number = "2", pages = "217-239", doi = "10.1556/032.2019.69.2.4" }
Pavlović, V., Knežević, G., Joksimović, M.,& Joksimović, D.. (2019). Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation. in Acta Oeconomica Budapest : Akadémiai Kiadó., 69(2), 217-239. https://doi.org/10.1556/032.2019.69.2.4
Pavlović V, Knežević G, Joksimović M, Joksimović D. Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation. in Acta Oeconomica. 2019;69(2):217-239. doi:10.1556/032.2019.69.2.4 .
Pavlović, Vladan, Knežević, Goranka, Joksimović, Marijana, Joksimović, Dušan, "Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation" in Acta Oeconomica, 69, no. 2 (2019):217-239, https://doi.org/10.1556/032.2019.69.2.4 . .