Analyzing the Financial Statements of Companies listed on the National Stock Exchange using the Benford’s Law

Abstract

Accounting numbers normally follow Benford’s mathematical rule. These findings are so unpredictable that knowledge manipulators typically refuse to comply with the law. Based on that information, accounting data that are submitted fraudulently can be identified. The law provides, however, for instances where data containing errors are presented to be detected. This paper examines the Indian companies ‘ financial statements of the last 10 years listed on the “National stock exchange of India” and testing whether they adhere to a statistical theorem called The Benford Law. The rule of Benford notes that the numbers are not uniformly distributed in a sequence of numerical data but instead obey a certain logarithmic rule such that the numbers beginning with a smaller digit have a greater frequency to occur than those beginning with larger digits. They use the first and the second digit test of Benford law to check whether businesses are following the logarithmic distribution.