Not So Risky Business: Leveraging Analytics to Fix Blind Spots in Auditing

Summary

In dealing with growing volumes of transactional data, auditors depend on sample auditing to determine the vulnerabilities in the system. But while selecting the target for sample auditing, biases can creep in and make the screening process ineffective.

Digit Distribution Analysis (DDA), based on Benford’s law of digits, is an effective algorithm that is independent of scale and context, and does not depend on past patterns of anomalies to identify new ones. DDA is already a well-trusted tool in accounting forensic analytics. This paper explores the effectiveness of DDA in finance and accounting auditing. Some highlights of DDA are as follows: