Chapter 6: Forensic Accounting and Audit Quality Evidence from the United States and South Africa.docx

Abstract

Forensic accounting – the application of investigative and analytical skills to financial evidence – is a critical tool for detecting and preventing fraud. Audit quality, particularly the independence and competence of external auditors, is the first line of defence against material misstatements. This chapter compares the forensic accounting profession and audit quality frameworks of the United States and South Africa. The US, through the Public Company Accounting Oversight Board (PCAOB) and rigorous litigation risk, has established high but costly audit standards. South Africa, with its strong professional bodies (SAICA, IRBA) and adoption of International Standards on Auditing (ISA), faces persistent challenges: low audit quality at state‑owned enterprises (SOEs), limited forensic capacity, and weak enforcement. Using PCAOB inspection reports, IRBA disciplinary data, and case studies (Steinhoff, Eskom), we find that South Africa’s audit quality is comparable to the US for large, listed companies but deteriorates sharply for SOEs and smaller firms. We propose a “differentiated audit quality regime” for South African SOEs, mandatory forensic rotation, and a US‑South Africa forensic certification exchange. The chapter concludes that audit quality cannot be separated from forensic readiness; both require institutional independence and credible sanctions.