SUMMARY: Auditors are required to use analytical procedures to identify the existence of unusual transactions, events, and trends. Benford's Law gives the expected patterns of the digits in numerical data, and has been advocated as a test for the authenticity and reliability of transaction level accounting data. This paper describes a new second‐order test that calculates the digit frequencies of the differences between the ordered (ranked) values in a data set. These digit frequencies approximate the frequencies of Benford's Law for most data sets. The second‐order test is applied to four sets of transactional data. The second‐order test detected errors in data downloads, rounded data, data generated by statistical procedures, and the inaccurate ordering of data. The test can be applied to any data set and nonconformity usually signals an unusual issue related to data integrity that might not have been easily detectable using traditional analytical procedures.
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Research Article| November 01 2009
Data Diagnostics Using Second‐Order Tests of Benford's Law
Mark J. Nigrini, Associate Professor;
Online ISSN: 1558-7991
Print ISSN: 0278-0380
American Accounting Association
AUDITING: A Journal of Practice & Theory (2009) 28 (2): 305–324.
Mark J. Nigrini, Steven J. Miller; Data Diagnostics Using Second‐Order Tests of Benford's Law. AUDITING: A Journal of Practice & Theory 1 November 2009; 28 (2): 305–324. https://doi.org/10.2308/aud.2009.28.2.305
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