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Note on Pre-Taxation Data Reported by UK FTSE-Listed Companies: Search for Compatibility with Benford’s Laws

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posted on 2025-03-07, 11:12 authored by Marcel AusloosMarcel Ausloos, Probowo Erawan Sastroredjo, Polina Khrennikova
Pre-taxation analysis plays a crucial role in ensuring the fairness of public revenue collection. It can also serve as a tool to reduce the risk of tax avoidance, one of the UK government’s concerns. Our report utilises pre-tax income (PI) and total assets (TA) data from 567 companies listed on the FTSE All-Share index, gathered from the Refinitiv EIKON database, covering 14 years, i.e., the period from 2009 to 2022. We also derive the PI/TA ratio, and distinguish between positive and negative PI cases. We test the conformity of such data to Benford’s Laws, specifically studying the first significant digit (Fd), the second significant digit (Sd), and the first and second significant digits (FSd). We use and justify two pertinent tests, the χ2 and the Mean Absolute Deviation (MAD). We find that both tests do not lead to conclusions in complete agreement with each other—in particular, the MAD test entirely rejects the Benford’s Laws conformity of the reported financial data. From the mere accounting point of view, we conclude that the findings not only cast some doubt on the reported financial data, but also suggest that many more investigations should be considered on closely related matters. On the other hand, the study of a ratio, like PI/TA, of variables that are (or are not) Benford’s Laws-compliant adds to the literature concerning whether such indirect variables should (or should not) be Benford’s Laws-compliant.

Funding

European Union—NextgenerationEU and the Romanian Government under the National Recovery and Resilience Plan for Romania, contract no.760034/23.05.2023, code PNRR-C9-I8-CF 255/29.11.2022

History

Citation

Ausloos, M.; Sastroredjo, P.E.; Khrennikova, P. Note on Pre-Taxation Data Reported by UK FTSE-Listed Companies: Search for Compatibility with Benford’s Laws. Stats 2025, 8, 15. https://doi.org/10.3390/stats8010015

Author affiliation

College of Business Accounting & Finance

Version

  • VoR (Version of Record)

Published in

Stats

Volume

8

Issue

1

Pagination

15 - 15

Publisher

MDPI AG

eissn

2571-905X

Acceptance date

2025-02-03

Copyright date

2025

Available date

2025-03-07

Language

en

Deposited by

Professor Marcel Ausloos

Deposit date

2025-02-16

Data Access Statement

Details regarding the analyzed data can be obtained within the text. The text also explains how new data were created. The final numerical results are all reported.

Rights Retention Statement

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