Research On The Application Of Benford's Law To Identify Financial Fraud Of Listed Companies

Financial fraud has always been a problem that plagued the auditing community.In the course of the development of China's capital market,there are financial fraud scandals of listed companies every year.Listed companies are supposed to be excellent enterprises with good faith,good governance,and good asset quality,but they keep breaking out financial fraud scandals,which greatly disrupt the order of the capital market,reduce the efficiency of investment and financing,and cause huge losses to investors.Regarding the issue of financial fraud of listed companies,is there a more efficient model or method that can predict and identify financial fraud? The use of Benford's law to analyze the probability distribution of different numbers and predict financial fraud will provide new ideas for solving this problem.This article first introduces Benford's law and reviews existing researches on the use of Benford's law to identify financial fraud.Then introduce the basic characteristics of financial fraud,the traditional countermeasures and information-based audit methods for identifying financial fraud.Next,the application principle of Benford's law to predict financial fraud is explained.Then,the correlation model is used to verify the financial data of Chinese listed companies from 2000 to 2018.The results show that the Benford's law has strong applicability to the financial data of Chinese listed companies.At the same time,it is found that the distribution probability of financial fraud data and normal financial data is significantly different.According to the difference between fraud data and normal data,"sensitive indexes of financial fraud" are proposed.The validity of the indexes to identify financial fraud are tested and it is found that the validity could reach 70%.Finally,the " sensitive indexes of financial fraud " are used to analyze the " H&R CENTURY UNION CORPORATION” and the specific application method of " sensitive indexes of financial fraud " is introduced.