

Benford's Law and the Decreasing Reliability of Accounting Data for US Firms - phoyd
http://econerdfood.blogspot.com/2011/10/benfords-law-and-decreasing-reliability.html

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0003
Auditor, and very soon to be CPA, here. The author "downloaded quarterly
accounting data for all firms in Compustat, the most widely-used dataset in
corporate finance that contains data on over 20,000 firms from SEC filings."
Quarterly reports are unaudited by an independent CPA firm (most often KPMG,
PWC, EY, Deloitte), while annual reports (10-K) are audited. I would be
curious if the the sum of squares analysis is as significant in the latter
set.

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eggoa
The figures could be still be reliable if this reflects an actual change in
distribution of business.

Speculation: Perhaps in 1960 businesses were really distributed according to a
power law but have reapportioned a bit over time. Trends like consolidation
and dominance of a few large firms might skew things.

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VikingCoder
He studied 43 _different variables_ on 20,000 firms.

That's like measuring the heart rate, LDL, HDL, blood sugar level, systolic
and diastolic blood pressure, height, weight, hair length, number of children,
salary, home value, and total miles driven on all of the cars... of an entire
football stadium worth of people.

And it's not like he's _correlating_ these numbers, that your salary is
proportional to your home value, or your weight is proportional to your blood
pressure.

No, these are statistical properties _of the numbers themselves_.

The hypothesis of the paper is that statistical deviations correlate with
financial crises. You doubt that correlation, but you think all of thousands
of other numbers can credibly show a statistical correlation? :)

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CWuestefeld
Not all measurements are subject to Benford's law. For example, a list of
people's heights isn't going to follow the distribution. You can't just
arbitrarily take values and expect them to fit into this mold.

Basically, Benford's Law works where the values are an open-ended count of
something. When it's a measurement within a bounded domain, all bets are off.

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pixcavator
>>a list of people's heights isn't going to follow the distribution.

Try centimeters.

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Confusion
Benford's law is base independant.

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trenthauck
As a soon to be CPA, these recent articles on Benford's Law fascinating. But
it's funny that there's extreme skepticism around Moore's Law, but Benford's
Law seems to get a free pass. Just like Moore's Law it's a law matched to
empirical observations - meaning it works until it doesn't.

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guelo
That is not true, Benford's law has rigid mathematical theory behind it, it is
not solely empirically grounded. It is a property of numbers.

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gwern
Ref: Terence Tao: [https://terrytao.wordpress.com/2009/07/03/benfords-law-
zipfs...](https://terrytao.wordpress.com/2009/07/03/benfords-law-zipfs-law-
and-the-pareto-distribution/)

