The tax return forms of a certain company includes a lot of numerical values accounting for revenues and losses. 968001 of these numerical values begin with the digit 5. 999211 of these numerical values begin with the digit 6. Do you have any concerns about the authenticity of the data exhibited in the tax declarations of the company?
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The question concerns the distribution of the leading digits in a large set of numerical values from a company's tax return forms. The concern raised is about the authenticity of the data based on the frequency of these leading digits. Show more…
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Frequencies of leading digits from IRS tax files are $152,89,63,48,39,40$, 28,25, and 27 (corresponding to the leading digits of $1,2,3,4,5,6,7,8$, and 9, respectively, based on data from Mark Nigrini, who provides software for Benford data analysis). Using a $0.05$ significance level, test for goodness-of-fit with Benford's law. Does it appear that the tax entries are legitimate?
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