Accounting Records: Benford’s Law Benford’s Law states that the first nonzero digits of numbers drawn at random from a large complex data file have the following probability distribution (Reference:

American Statistical Association, Chance, Vol. 12, No. 3, pp. 27–31; see also the Focus Problem of Chapter 9).

First nonzero digit 1 2 3 4 5 6 7 8 9 Probability 0.301 0.176 0.125 0.097 0.079 0.067 0.058 0.051 0.046 Suppose that n 5 275 numerical entries were drawn at random from a large accounting file of a major corporation. The first nonzero digits were recorded for the sample.

First nonzero digit 1 2 3 4 5 6 7 8 9 Sample frequency 83 49 32 22 25 18 13 17 16 Use a 1% level of significance to test the claim that the distribution of first nonzero digits in this accounting file follows Benford’s Law.

AppendixLO1