Benford’s Law in the Forensic Analysis of Cash Flow Statements of Business Entities in Bosnia and Herzegovina

Abstract

This paper examines the application of Benford’s Law in the forensic analysis of cash flow statements of business entities in Bosnia and Herzegovina. Through empirical research, the following hypotheses were tested: increasing and decreasing items in cash flow statements follow Benford’s Law, and there is no statistically significant difference in the first-digit distribution between increasing and decreasing items. The results show that decreasing items follow Benford’s Law, while increasing items exhibit statistically significant deviations. Additionally, for most digits, no statistically significant difference was found between increasing and decreasing items, except for the digit 3. The findings indicate the need to educate auditors about the application possibilities of Benford’s Law, as well as its wider use with the aim of reducing audit costs and increasing audit efficiency.

(Previously published on Sciendo: https://reference-global.com/article/10.2478/jfap-2025-0007, under licence CC BY-NC-ND 4.0)