After the major accounting scandals with Enron, a large energy company, the question may be posed, Was

After the major accounting scandals with Enron, a large energy company, the question may be posed, €œWas there any way to examine Enron€™s accounting books to determine if they had been €˜doctored€™?€ One way uses Benford€™s law, which states that in a variety of circumstances, numbers as varied as populations of small towns, figures in a newspaper or magazine, and tax returns and other business records begin with the digit 1 more often than other digits. This law states that the probabilities for the digits 1 through 9 are approximately:

a. If we were to randomly pick one of the digits between 1 and 9 using a random number table or software, what is the probability for each digit?
b. When people attempt to fake numbers, there€™s a tendency to use 5 or 6 as the initial digit more often than predicted by Benford€™s law. What is the probability of 5 or 6 as the first digit by (i) Benford€™s law and (ii) random selection?

Transcribed Image Text:

Digit Probability 0.30 0.18 0.12 0.10 0.08 0.07 0.06 0.05 0.04