Which of the following is a red flag indicating potential fraud in an engagement?

• A. Normal vendor activity
• B. Consistent data
• C. Unusual journal entries
• D. Regular approvals align with policy

Answer: (C)

Unusual journal entries are a red flag because journals can be used to hide improper transactions, adjust figures after the fact, or shift income and expenses to misstate results. They stand out when they occur outside normal patterns—large amounts, entries made near period end, in unusual accounts, or lacking supporting documentation and proper supervisory review. A strong control environment would already require approvals, an audit trail, and reconciliations for journal entries, so deviations from these norms deserve closer scrutiny. By contrast, normal vendor activity, consistent data, and regular approvals aligned with policy indicate standard processes are in place and do not by themselves signal fraud.