Research Note Client risk and recent changes in the market for audit services Frederick L. Jones * , K. Raghunandan Department of Accounting and Finance, College of Business and Industry. University of Massachu- setts-Dartmouth, North Dartmouth, MA 02747, USA Abstract Some writers (Berton, 1995, B1; Holland et al., 1993, 76) have suggested that because of increasing litigation costs, public accounting ®rms are refusing to supply audit servic- es to public companies which are perceived as high-risk. Our paper examines the pro- portions of certain types of risky clients audited by Big Six and other independent audit ®rms, and whether the relative proportions have changed during a period of in- creasing litigation. We examined the audit market for public manufacturing companies with total assets less than $50 million. In the initial period of observation, we found that Big Six audit ®rms were more likely than small audit ®rms to have clients who were in ®nancial distress and clients who were in high-tech industries. However, over a period of increasing litigation costs, we observed a signi®cant reduction in the likelihood that Big Six audit ®rms would audit such clients. Ó 1998 Elsevier Science Inc. 1. Introduction Recently, the public accounting profession in general and the Big Six ®rms in particular have complained often about the threat posed to the public ac- counting profession by increasing litigation (Berton, 1995, p. B1; Holland et al., 1993, p. 76; Public Oversight Board, 1993, pp. 9, 10). Relief from excessive litigation has become a primary legislative issue for the public accounting pro- fession. During the lobbying eort in support of the recently enacted Private Securities Litigation Reform Act (1995), the American Institute of Certi®ed Journal of Accounting and Public Policy 17 (1998) 169±181 * Corresponding author. Tel.: +1 508 999 8422; fax: +1 508 999 8776; e-mail: fjones@umassd.edu. 0278-4254/98/$19.00 Ó 1998 Elsevier Science Inc. All rights reserved. PII:S0278-4254(97)10002-3