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Application of Benford’s law to detect signs of under-invoicing in companies in the restaurant sector during the COVID-19 pandemic

Author

Listed:
  • Martins Ana

    (Instituto Politécnico de Bragança, Bragança, Portugal)

  • Alves Jorge

    (Unidade de Investigação Aplicada em Gestão (UNIAG), Instituto Politécnico de Bragança, Bragança, Portugal)

  • Vaz Clara

    (Centro de Investigação em Digitalização e Robótica Inteligente (CeDRI), Instituto Politécnico de Bragança, Bragança, Portugal)

Abstract

The main objective of this study is to detect signs of under-invoicing by applying Benford’s law to the Portuguese restaurant sector during the COVID-19 pandemic, in the context of government support policies. Between 2020 and 2021, the State adopted several measures to provide additional support to companies that have seen a significant decrease in their activity, namely, a reduction of at least 25% in turnover. A literature review was carried out focusing on the impact of the COVID-19 pandemic on the companies under analysis, the support measures adopted by the State and, finally, a survey of the theoretical component relating to the application of Benford’s law in accounting. The data were collected from the Iberian Balance Sheet Analysis System database for 2019, 2020, and 2021. After analysing the data, significant deviations are observed in several digits, practically for all the compliance tests, both in the analysis of the first digit test and in the analysis of the first two digits test. The results therefore show signs of under-invoicing in 2020 by the analysed companies, which suffered, on average, a 79% reduction in turnover.

Suggested Citation

  • Martins Ana & Alves Jorge & Vaz Clara, 2024. "Application of Benford’s law to detect signs of under-invoicing in companies in the restaurant sector during the COVID-19 pandemic," European Journal of Tourism, Hospitality and Recreation, Sciendo, vol. 14(2), pages 273-284.
    • Handle: RePEc:vrs:ejothr:v:14:y:2024:i:2:p:273-284:n:1008
    DOI: 10.2478/ejthr-2024-0020
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    References listed on IDEAS

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    1. Mark J. Nigrini, 2005. "An Assessment of the Change in the Incidence of Earnings Management Around the Enron‐Andersen Episode," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 4(1), pages 92-110, January.
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