Commercial disputes turn on financial records, and reading them competently is a practical skill rather than an accounting one.
Start with the cash flow statement. Earnings are an opinion; cash is a fact. Operating cash flow persistently below net income is the single most useful signal.
Revenue recognition. When revenue is recorded relative to when cash is received and when performance occurs. Growing receivables relative to revenue, and growing unbilled revenue, indicate recognition ahead of collection.
Related party transactions. Disclosed in the notes, and frequently the mechanism through which value moves in an owner dispute.
Accrued liabilities and reserves. Changes in reserve levels move earnings without any operating change, and reserve releases in a period of weak performance are worth examining.
Officer compensation and distributions, in a closely held company, compared across years and against the dispute’s timeline.
Notes. Commitments, contingencies, subsequent events, debt covenants and their compliance, and accounting policy changes.
Comparability. Restated prior periods, changed classifications, and acquisitions that make year-over-year comparison meaningless without adjustment.
Ask for the general ledger. Statements are summaries; the ledger is the record, and the entries are where the answers are.