Benfords Law or the First Digit Law Essay Example | Topics and Well Written Essays - 1000 words

Benfords Law or the First Digit Law - Essay Example I can astronomer names Simon Newcomb, who noticed that the earlier pages of logarithm tables that are used in the performance of calculations were much more worn than other pages. Newcomb published result become the first known instance of this observation and also includes the distribution of the second digit. He then proposed a law that is based on the probability of a single number N that is the first digit of a number was equal to log(N  +  1)  Ã¢Ë†â€™Ã‚  log(N). The results from Benford’s law are used in different data such as street addresses, electricity bills, population numbers, lengths or rivers, stock prices, death rates, mathematical and physical constants as well as processes that are described using power law. The main condition for this law is that the data set or population must only consist of natural numbers (Nigrini 170). The results from the law tend to be highly accurate whenever the values are distributed across numerous orders of magnitude. Benford’s law is also highly used in the detection of fraud, errors, embezzlements, and sloppy accountants. This is because those people who normally commit a crime may end up creating fake payment amounts that may appear real. Benford’s law is a data mining approach that is used in auditing in order to examine the digit properties in different accounting data for the purposes of character identification. However, unless the person committing is aware of Benford’s law of distribution, then he will not be in a position to make up numbers that follow the proper curve and this makes it very easy to spot a potential fraud. People who commit a crime also tend to distribute their digits in a fairly uniform manner. With a simple comparison of the frequency of the first digit from the data in accordance with the expected distributing according to Benford’s law will always reveal anomalous results. Based on this idea, Benford’s law could be used in auditing and forensic auditing to act as an indicator.