Red flags in financial reporting will then distinguish manipulations, errors, or even frauds. Such flags include frequent change of auditors over and over again, qualification or adverse audit opinion, or that it is under investigation by some regulatory bodies. This should be an external check on the financial reporting by any company; if the firm frequently changes auditors or gets a negative audit opinion, and then this may indicate grave problems with its financial practices.
Also, every inquiry into the company's accounting or business practices has to be ascertained. Such matters most of the times stand at large and eventually it may lead to restatement, penalty through law or even bankruptcy.