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The empirical analysis of financial reports of companies in Croatia: Benford distribution curve as a benchmark for first digits

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  • Cunjak Mataković Ivana

    (Centar-revizija d.o.o., Croatia)

Abstract

The financial numbers game is unfortunately alive and doing well. One of the forensic accounting techniques is based on Benford’s Law and is used for the detection of unusual transactions, anomalies or trends. The aim of this paper is to test whether the financial statements of Croatian companies deviate from Benford’s Law distribution. The financial statements of 24 companies that are in the pre-bankruptcy settlement process and 24 companies that are not in the pre-bankruptcy settlement process were analysed using the Benford’s Law test of the first digit distribution for the period from 2015 to 2018. The data used to calculate the first digits of distribution were taken from the Zagreb Stock Exchange. The chi-square test has shown that the observed companies that are not in the process of pre-bankruptcy settlement do not have the first digit distribution which follows the Benford’s Law distribution. The Kolmogorov-Smirnov Z test has shown that the distribution of the first digits from the financial statements of companies listed on the Zagreb Stock Exchange fits to Benford’s Law distribution.

Suggested Citation

  • Cunjak Mataković Ivana, 2019. "The empirical analysis of financial reports of companies in Croatia: Benford distribution curve as a benchmark for first digits," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 5(2), pages 90-100, December.
    • Handle: RePEc:vrs:crebss:v:5:y:2019:i:2:p:90-100:n:8
    DOI: 10.2478/crebss-2019-0014
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    References listed on IDEAS

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    1. Bernhard Rauch & Max Göttsche & Gernot Brähler & Stefan Engel, 2011. "Fact and Fiction in EU‐Governmental Economic Data," German Economic Review, Verein für Socialpolitik, vol. 12(3), pages 243-255, August.
    2. Shi, Jing & Ausloos, Marcel & Zhu, Tingting, 2018. "Benford’s law first significant digit and distribution distances for testing the reliability of financial reports in developing countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 492(C), pages 878-888.
    3. Natasa Omerzu & Iztok Kolar, 2019. "Do the Financial Statements of Listed Companies on the Ljubljana Stock Exchange Pass the Benford’s Law Test?," International Business Research, Canadian Center of Science and Education, vol. 12(1), pages 54-64, January.
    4. repec:bla:germec:v:11:y:2010:i::p:397-401 is not listed on IDEAS
    5. Diekmann Andreas & Jann Ben, 2010. "Benford’s Law and Fraud Detection: Facts and Legends," German Economic Review, De Gruyter, vol. 11(3), pages 397-401, August.
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    More about this item

    Keywords

    Benford’s Law; Chi-square goodness-of-fit test; first digits; forensic accounting; Kolmogorov-Smirnov Z test;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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