AN APPLICATION OF BENFORD’S LAW TO FUNDAMENTAL ACCOUNTING FIGURES REPORTED BY BORSA ISTANBUL (BIST) COMPANIES

Year 2016, , 234 - 243, 30.09.2016

Asli Aybars , Levent Ataunal

https://doi.org/10.17261/Pressacademia.2016321991

Abstract

The
financial reporting of public firms is argued for being subject to manipulation
and fraud. Since adherence to this mysterious law is accepted as a sign for the
data’s reliability, Benford’s Law has long been used by auditors as a tool to
test the integrity of a dataset and to detect fraud. The expected distribution
of digits in any set of natural numbers has initially been put forward by
Benford (1938). Benford’s law states that probability distribution of digits’
occurrence is not uniform. Smaller digits are found to exist more frequently
than the greater ones. This study tested the compliance of fundamental figures
reported by Borsa Istanbul (BIST) companies with Benford’s Law, by means of a
data between 2005 and 2015 covering 148 companies. According to the different
testing approaches utilized, which imparted rather similar results, reported
figures of current assets and net sales seemed to be almost in perfect
conformity with Benford’s Law. However, the study detected several deviation
points in the data of total assets and net profit figures from Benford’s Law.
From the results of this study, we cannot conclude that they are extensively
manipulative or they are in full conformity with the Benford’s Law.
Nevertheless, this study suggests the possible point of interest for further
researches. In application of Benford’s Law non-conformity should be evaluated
with discretion. The deviations are only a signal to analyze the data further,
and should not be seen as a solid proof of fraud or manipulation.

Keywords

Benford’s Law, Borsa Istanbul, manipulation, fraud

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