Applying Benford's Law to individual financial reports: An empirical investigation on the basis of SEC XBRL filings

Henselmann K, Scherr E, Ditter D (2012)

Publication Type: Other publication type

Publication year: 2012

Series: Working Papers in Accounting Valuation Auditing

Journal Issue: 2012-1

Abstract

This study examines whether investors could use Benford’s Law as an aid in determining high-risk areas for investing within their process of decision-making. The business reporting standard XBRL offers the opportunity to easily extract and analyze a sufficient number of monetary items out of single annual reports for statistical analysis purposes. Using SEC XBRL filings of S&P 500 companies (Fiscal Year 2010), we derive first digit distributions for single companies and measure the deviation from the Benford distribution. On average, we
find that for all monetary numbers that are contained in the examined XBRL reports, the first digit distribution follows Benford’s Law. A firm and industry-specific analysis reveals the industry Financials as being most conspicuous. Taken together, the empirical results suggest that the application of Benford’s Law to annual reports might be a useful analytical tool for investors.

Authors with CRIS profile

Klaus Henselmann Lehrstuhl für Betriebswirtschaftslehre, insbesondere Rechnungswesen und Prüfungswesen Elisabeth Scherr Juniorprofessur für Wirtschaftsprüfung mit dem Schwerpunkt digitale Datenanalyse Dominik Ditter Lehrstuhl für Betriebswirtschaftslehre, insbesondere Rechnungswesen und Prüfungswesen

How to cite

APA:

Henselmann, K., Scherr, E., & Ditter, D. (2012). Applying Benford's Law to individual financial reports: An empirical investigation on the basis of SEC XBRL filings.

MLA:

Henselmann, Klaus, Elisabeth Scherr, and Dominik Ditter. Applying Benford's Law to individual financial reports: An empirical investigation on the basis of SEC XBRL filings. 2012.

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