This study investigates how audit firm-level spatial licensing requirements affect audit market competition and audit quality, focusing on small (triennially inspected) audit firms, for which licensing frictions are most relevant. Exploiting the staggered state-level adoption of CPA firm mobility provisions that remove spatial licensing barriers, we find that adoption increases competition among small audit firms, as reflected by lower market concentration and greater first-time entry by small out-of-state auditors. Firm mobility adoption also improves audit quality, as indicated by a lower likelihood of client misstatements. These effects are concentrated in less competitive audit markets and among auditors with higher PCAOB deficiency rates. Audit quality improvements extend to both incumbent auditors and new out-of-state entrants, and we find no evidence of audit fee discounting. Overall, our results suggest that removing spatial licensing barriers fosters a more competitive small audit firm market while improving audit outcomes, without increasing audit costs.