Question: A recent graduate of an accounting program went to work for a large international accounting firm and noted that the firm sets audit risk at

A recent graduate of an accounting program went to work for a large international accounting firm and noted that the firm sets audit risk at 5% for all major engagements. What does a literal interpretation of setting audit risk at 5% mean? How could an audit firm set audit risk at 5% (i.e., what assumptions must the auditor make in the audit risk model to set audit risk at 5%)?

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