Chapter 8 - 1

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CASE 8-1
Norman Corporation (A)
Case Analysis

Group : 2
Members : Carbonell, Rosario Carpio, Nathaniel Zarate, Vic Paulo
Date : October 21, 2013

I. Title of the case: Norman Corporation (A)

II. Background of the Case
Until 2010, Norman Corporation, a young manufacturer of specialty consumer products, had not had its financial statements audited. It had, however, relied on the auditing firm of Kline & Burrows to prepare its income tax returns. Because it was considering borrowing on a long-term note and the lender surely would require audited statements. Norman decided to have its 2010 financial statements attested by Kline & Burrows.
Kline & Burrows assigned Jennifer Warshaw to do preliminary work on the engagement, under the direction of Allen Burrows. Norman’s financial vice president had prepared the preliminary financial statements shown in Exhibit 1. In examining the information on which these financial statements were based. Ms. Warshaw discovered the facts listed below. She referred these to Mr. Burrows.

1. In 2010 a group of female employees sued the company, asserting that their salaries were unjustifiably lower than salaries of men doing comparable work. They asked for back pay of $250,000. A large number of similar suits had been filed in other companies, but results were extremely varied. Norman’s outside counsel thought that the company probably would win the suit but pointed out that the decisions thus far were divided, and it was difficult to forecast the outcome. In any event, it was unlikely that the suit would come to trial in 2011. No provision for this loss had been made in the financial statements. 2. The company had a second lawsuit outstanding. It involved a customer who was injured by one of the company’s products. The customer asked for $500,000 damages. Based on…...

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