Benford’s Law in Forensic Analysis of Income Statements of Economic Entities in Bosnia and Herzegovina

Sevala Isakovic-Kaplan (), Lejla Demirovic () and Mahir Proho ()
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Sevala Isakovic-Kaplan: School of Economics and Business, University of Sarajevo, Bosnia and Herzegovina
Lejla Demirovic: School of Economics and Business, University of Sarajevo, Bosnia and Herzegovina
Mahir Proho: AS Holding, Sarajevo, Bosnia and Herzegovina

Croatian Economic Survey, 2021, vol. 23, issue 1, 31-61

Abstract: The objective of preparing and presenting financial statements is to provide information about the financial position and performance of an entity, which is useful to a wide range of users of financial statements for business decisions. If information presented in the financial statements is not full disclosure and/or is incorrect, the presented image of the business entity will be wrong, as well as business decisions made on the basis of such financial statements. Unfortunately, many entities knowingly manipulate revenues and expenses to manage earnings in a way that suits the entity management. Detecting frauds in financial statements is the primary task of forensic accountants. This paper analyzes the possibilities of applying Benford’s law in the forensic analysis of income statements of economic entities in Bosnia and Herzegovina, to detect possible earnings manipulation. The results of the research confirm that the positions of revenues and expenses in the income statements of economic entities in Bosnia and Herzegovina generally follow Benford’s law, but also stress the need to increase attention and conduct additional forensic investigations for certain items as indicators of financial statement manipulation.

Keywords: Benford’s law; the first digit phenomenon; financial statement fraud; fraud indicator; forensic accounting (search for similar items in EconPapers)
JEL-codes: K13 M41 M42 (search for similar items in EconPapers)
Date: 2021
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:iez:survey:ces-v23_1-2021_sevala-isakovic-demirovic-proho

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