Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation*

Vladan Pavlović; Goranka Knežević; Marijana Joksimović; Dušan Joksimović

doi:10.1556/032.2019.69.2.4

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Acta Oeconomica

Volume/Issue:: Volume 69: Issue 2

Fraud Detection in Financial Statements Applying Benford's Law with Monte Carlo Simulation *

Authors:

Vladan Pavlović

Vladan Pavlović corresponding author. Full Time Professor at the Faculty of Economics, University of Pristina( Kosovska Mitrovica), Serbia.

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vladan.pavlovic@pr.ac.rs

Goranka Knežević

Goranka Knežević corresponding author. Full Time Professor at the Faculty of Economics, University of Pristina( Kosovska Mitrovica), Serbia.

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gknezevic@singidunum.rs

Marijana Joksimović

Marijana Joksimović corresponding author. Full Time Professor at the Faculty of Economics, University of Pristina( Kosovska Mitrovica), Serbia.

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joksimovicm@megatrend.edu.rs

, and

Dušan Joksimović

Dušan Joksimović corresponding author. Full Time Professor at the Faculty of Economics, University of Pristina( Kosovska Mitrovica), Serbia.

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dusan.joksimovic@kpu.edu.rs

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Pages:: 217–239

Online Publication Date:: Jun 2019

Publication Date:: 01 Jun 2019

Article Category:: Journal Article

DOI:: https://doi.org/10.1556/032.2019.69.2.4

Keywords:: Benford's Law; income statement; auditing; financial fraud; Monte Carlo simulation

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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.

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Acta Oeconomica Periodical of the Hungarian Academy of Sciences

Print ISSN:: 0001-6373

Online ISSN:: 1588-2659

Associate Editors

Péter Benczúr, Joint Joint Research Center, European Commission
Dóra Benedek, International Monetary Fund
Balázs Égert, OECD
Dániel Prinz, World Bank
Rok Spruk, University of Ljubljana, School of Economics and Business, Slovenia

Editorial Board

Anders Åslund, Georgetown University and Advisory Council of CASE, USA
István Benczes, Corvinus University of Budapest, Hungary
Agnieszka Chłoń-Domińczak, SGH Warsaw School of Economics, Poland
Fabrizio Coricelli, University of Siena, Italy
László Csaba, Corvinus University of Budapest, Hungary and Central European University, Austria
Beáta Farkas, Faculty of Economics and Business Administration, University of Szeged, Hungary
Péter Halmai, Budapest University of Technology and Economics, and National University of Public Service, Hungary
Martin Kahanec, Central European University, Austria
Michael Landesmann, The Vienna Institute for International Economic Studies (WIIW), Austria
Péter Mihályi, Corvinus University of Budapest, Hungary
Debora Revoltella, European Investment Bank

Corvinus University of Budapest
Department of Economics
Fővám tér 8 Budapest, H-1093, Hungary
E-mail: judit.kalman@uni-corvinus.hu

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2023
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Acta Oeconomica
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Acta Oeconomica
Language	English
Size	B5
Year of Foundation	1966
Volumes per Year	1
Issues per Year	4
Founder	Magyar Tudományos Akadémia
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ISSN	0001-6373 (Print)
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