Which of the following is NOT a red flag for revenue manipulation?

• A. Unusual spikes in revenue
• B. Strong internal controls and consistent margins
• C. Revenue growth not supported by market conditions
• D. Inconsistent gross margins

Answer: (B)

Revenue manipulation tends to show up as patterns that don’t align with how the business actually operates. Unusual spikes in revenue can be a sign of accelerating or recognizing revenue prematurely. If revenue growth isn’t supported by market conditions, it suggests demand isn’t real or sustainable. Inconsistent gross margins point to shifting costs or questionable recognition practices that can inflate reported revenue. The presence of strong internal controls and consistent margins, however, indicates reliable processes and normal, honest reporting; this reduces the likelihood of manipulation. So the option describing strong internal controls and consistent margins is not a red flag.