The Use of Benford's Law as an Aid in Analytical Procedures.

Abstract This study introduces and describes digital and number tests that could be used by auditors as analytical procedures in the planning stages of the audit. The mathematical basis of the tests is Benford's Law, a property of tabulated numbers that provides the expected frequencies of the digits in tabulated data. Several empirical studies suggest that the digit patterns of authentic numbers should conform to the expected frequencies of Benford's Law. Thus, auditors could test the authenticity of lists of numbers by come paring the actual and expected digital frequencies. The results could assist auditors in determining the nature and extent of other audit procedures. Several tests are presented that examine data for conformity of the digital frequencies to Benford's Law, and a successful illustration at an oil company is described. Other case studies from practice illustrating the detection of suspect items are briefly presented.