The revelation of Benford's Law and its implications for accounting data.
Posted this on Percolate (that's a link with an invite code) and it was too good not to post here as well.
This is amazing. Turns out there is a thing called Benford's Law, that basically says numbers are distributed in the universe in order. What that means is that there are more 1s than 2s and more 2s than 3s, so any random sample of data should show that distribution. This guy looked through a bunch of accounting data, not so surprisingly, found exactly this distribution (the number 1 appeared far more than the number 2, etc.). Where things get interesting is when he started to look at how accounting deviated from Benford's Law over time. Turns out that the distribution in numbers is about 3 percent off what the law would predict, signaling that someone is playing with the numbers. "The deviation increased sharply between 1982-1986 before leveling off, then zoomed up again from 1998 to 2002. Notably, the deviation from Benford dropped off very slightly in 2003-2004 after the enactment of Sarbanes-Oxley accounting reform act in 2002, but this was very tiny and the deviation resumed its increase up to an all-time peak in 2009." Wow.