Academic journal article Academy of Educational Leadership Journal

Introducing Digit Analysis with an Interactive Class Exercise

Academic journal article Academy of Educational Leadership Journal

Introducing Digit Analysis with an Interactive Class Exercise

Article excerpt


Instruction is always the most effective with motivated students. This pedagogical technique begins by requiring the students to create fictitious data which the instructor will demonstrate is false. Students invariably are intrigued by how the instructor can prove the data is false. This curiosity is satisfied by a discussion of digit analysis and Benford's Law. Students are then given an assignment in which they learn that the application of digit analysis is a relatively simple application of basic statistics. Once completed, students have a very good understanding of digit analysis (including its limitations) and are very competent in the application of digit analysis.


Auditors often use digit analysis to review large data sets and make a general determination as to the data set's apparent reliability (Banyard 2000, Nigrini 1999a, Tapp and Burg 2000). By identifying data that does not fit with predetermined expectations, the auditor can be alerted to the presence of data which is corrupted, either deliberately or accidentally (Lowe 2000a, b). This provides the auditor a potentially valuable tool in detection of fraud and is useful to help the auditor discharge the responsibilities of SAS #99 (AICPA, 2002). Given the scarcity of good diagnostic tools to detect fraud, digit analysis is something of which every auditor should be aware and should have a basic understanding in its proper application.

While digit analysis is not a normal topic for an undergraduate auditing class, it is commonly taught in classes on forensic accounting, graduate auditing, and internal auditing. Basic information about this technique can be found in most forensic accounting texts such as Albrecht (2002), Robertson (2002), or Hopwood, et al. (2008). There is no reason, perhaps other than time constraints, why digit analysis could not be taught in an undergraduate auditing class. Undergraduate auditing students have the necessary technical skills (understanding of basic statistics and spreadsheet applications) and the necessary conceptual understanding of auditing to recognize the usefulness of digit analysis.

The purpose of this paper is to share with other instructors a teaching technique which I have used to introduce digit analysis. I have found the technique to be a stimulating and effective way to introduce this topic. The technique involves the students in an interactive exercise which stimulates their curiosity. This teaching technique makes the usefulness of the digit analysis techniques abundantly clear to the students without the necessity of instructor emphasis. Once the value of the technique is clearly demonstrated to the students, I have found that subsequent lectures and discussions into digit analysis techniques have been particularly fruitful and several students have requested more information about the topic which went well beyond class requirements.

This paper is organized in this manner. The next section provides some background information about digit analysis. That is followed by a discussion of the pedagogical approach employed. In that section, the learning objectives are listed, the initial curiosity-creating exercise and basic lecture information are discussed, and the out-of-class assignments are presented. The paper concludes by summarizing the methodology and suggesting additional ideas for teaching this interesting topic.


Conceptually, digit analysis is a straight-forward process. First, the data is prepared by tabulating how frequently each digit appears in each digit spot. Second, this actual data is totaled and then compared to an expectation. The expectation is determined by a relatively unknown mathematical law. Finally, the actual occurrence of the digit appearance rates is compared to the expectations and simple statistical analysis is performed. …

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