Final answer:
The first step in an analysis of financial statements is to specify the objectives of the analysis. This initial step sets the foundation for a focused and clear analysis, guiding all subsequent investigative actions. The correct option is (c) Specify the objectives of the analysis.
Step-by-step explanation:
The first step in an analysis of financial statements is to specify the objectives of the analysis. This frames the context of the analysis and guides the subsequent steps. Once the objectives are clear, an auditor's report can be checked, financial references reviewed, and a common-size analysis conducted, all within the scope defined by the objectives.
It is critical to maintain an objective stance throughout the process, focusing on providing a report free from bias and emotional language and using statistics and factual information to support findings. Thinking carefully about the timeline of events — what happens first, what happens next, and determining cause and effect — ensures that the analysis follows a logical and orderly progression. The correct option is (c) Specify the objectives of the analysis.