Question: Rex Tee is a staff auditor for a large audit firm. As part of the audit planning process for the Kirtland Company audit, he has

Rex Tee is a staff auditor for a large audit firm. As part of the audit planning process for the Kirtland Company audit, he has been informed that the materiality threshold for the audit will be $250,000.This means that audit disagreements about amounts less than $250,000 will not be actively investigated. This threshold has been justified by the fact that Kirtland has annual sales in excess of $50 million. Rex has been trying to establish a friendly working relationship with the accounting staff at Kirtland. In a conversation this morning, Rex made the following statement to the assistant controller: “I found an audit difference of $185,000 yesterday, but we aren’t going to investigate it because our materiality threshold on this audit is $250,000.”What danger is there in Rex’s comment? What danger is there in establishing the $250,000 threshold?

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