Wednesday, October 12, 2011

Data To Prove Increase In Accounting Fraud?

Pretty neat tool to show the decrease in the reliability of accounting data of US firms. It's called Benford's Law. Basically, this is what it says:
A second earth-shattering fact is that there are more numbers in the universe that begin with the digit 1 than 2, or 3, or 4, or 5, or 6, or 7, or 8, or 9. And more numbers that begin with 2 than 3, or 4, and so on. This relationship holds for the lengths of rivers, the populations of cities, molecular weights of chemicals, and any number of other categories. What a blow to any of us who purport to have mastered the basic facts of the world around us!