Benford’s Law Case Exercise

Benford’s Law Case Exercise

XYZ Corp.

Use the Excel XYZ Corp. data (year’s daily sales amounts) supplied with this case exercise (XYZ Corp – Benford Exercise Data – OK).

In the audit of XYZ’s financial statements, you decide to use Benford’s Law to analyze the first digit of XYZ’s sales amounts as a planning analytical procedure/risk assessment procedure. (You want to see if the sales numbers look suspicious.)

Benford’s Law Case Exercise

Use Benford’s Law (and any other insights or knowledge you possess) on the XYZ Corp. sales data to analyze the first digit (7,320 sales totaling $29,590,385). How does the data look? Do you see any indications of fraud? What would you conclude in your planning/risk assessment?

Your report should include, at a minimum:

1. Your written report (what you did, results you obtained, conclusions you reached).

2. A graph(s) of your first digit analysis (comparing the Benford’s Law distribution of first digits to XYZ Corp.’s distribution of first digits.

3. Any “goodness-of-fit” analyses you performed (at a minimum perform chi-square and M.A.D. tests).

Plus, on the due date you should be prepared to discuss your analysis and results. You may inform your results and we will discuss the case