Over the past few Weeks a lot of companies in different sectors have been releasing the Audited Financial Statements, with profit every where, dividends paid to shareholders and share prices increasing. This is a every necessary step in the corporate space as investors look forward to see the performance of different companies across different industries.
While the BIG 4’s are the auditors for many tier one banks and tier one companies, it is important to understand some basic line items on the AFS, big 4’s know for there thoroughly detailed job together with their reputation should not only be used as a metric of good account.
Items to check on the are on the statement of profit or loss and statement of financial position.

On the P&L, check the revenue of the company as a company must earn enough to keep it running.in essence a company may be making huge revenue without profit……this should call you attention to an unusual activity.
Next the profit after tax, it is normal for a firm not to make profit but it will be unusual when the firm does not making profit often…..when there is no profit there’s no dividends to pay to shareholders.

On the statement of financial position, check first for the current assets what comprises of it…….this is important as it gives an idea of how much liquid the company controls, then the non current asset….you are to concern yourself with the value because in the long run it would loose it value through depreciation, impairment and others……it is advisable that the non current asset should be more than 2:1 of current assets.
Then you check the current liabilities, this gives you an idea of what the company owes and it show the capability of such liabilities been met when current assets is higher than current liabilities. It also gives ideas on how the company is financed. The non current liabilities this is the back bone a company because you know the company is in good shape or bad shape when the non current liabilities can not be finance with the capital of the firm.
Last retained earnings. This shows you how much the company has made since it’s started operations. A good retained earnings show inflow and vice versa.

I hope have been able to help you understand AFS in few steps. Every other things is why and how the above happened.