Identifying and Explaining the Dimensions and Components of “Capacity” in Small and Medium-Sized Audit Firms and Analyzing Its Role in Audit Service Quality

Mohsen  Salami Dehkhargani; Rasul Abdi; Ali  Jafari; Nader  Rezai

Authors

Mohsen Salami Dehkhargani Department of Accounting, Bon.C., Islamic Azad University, Bonab, Iran Author https://orcid.org/0009-0008-2419-9671
Rasul Abdi Department of Accounting, Bon.C., Islamic Azad University, Bonab, Iran https://orcid.org/0000-0001-5558-8030
Ali Jafari Department of Accounting, Bon.C., Islamic Azad University, Bonab, Iran Author https://orcid.org/0000-0001-5060-1291
Nader Rezai Department of Accounting, Bon.C., Islamic Azad University, Bonab, Iran Author https://orcid.org/0000-0001-9907-4648

Keywords:

Audit-firm capacity, small and medium-sized audit firms, audit quality, professional governance, intelligent risk management, digital auditing, organizational capability

Abstract

This study aimed to identify and explain the dimensions and components of capacity in small and medium-sized audit firms and to clarify how these capacities influence the quality of audit services. This qualitative exploratory–developmental study combined a systematic qualitative review of scientific and professional literature with in-depth semi-structured interviews. Documentary sources related to audit quality, risk-based auditing, professional governance, digital transformation, organizational capability, and small and medium-sized audit firms were selected through purposive criterion-based sampling and analyzed using systematic qualitative content analysis. The field participants comprised 18 experts, including audit-firm partners, senior auditors and audit managers, university academics, information-technology and data-analysis specialists, professional regulators, and financial managers of small and medium-sized enterprises. Participants were selected purposively and through snowball sampling, and interviews continued until theoretical saturation. Data were analyzed through open coding, axial coding, constant comparison, theme development, and integration of documentary and interview evidence. The analysis indicated that capacity in small and medium-sized audit firms is a multidimensional and systemic construct rather than a simple function of firm size or resource volume. Five interdependent dimensions were inferred: professional governance and oversight capacity, intelligent risk-management capacity, digital audit capacity, audit-quality and service-delivery capacity, and human and organizational capacity. Audit quality improved when these dimensions operated coherently through effective leadership, proportionate quality management, risk-oriented resource allocation, technological readiness, competent personnel, organizational learning, reliable data, and structured supervision. Weakness in any dimension reduced the effectiveness of the others and constrained the firm’s ability to convert available resources into reliable, timely, independent, and standards-compliant audit services. Capacity should be understood as the coordinated ability of an audit firm to mobilize professional, technological, organizational, and governance resources in response to engagement risks. Strengthening capacity therefore requires integrated development rather than isolated investment in personnel, technology, or formal controls.

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