How is audit frequency determined for auditable entities based on risk?

Audit frequency for auditable entities is primarily determined by the level of risk they present. Higher-risk entities require more audits and a greater allocation of resources because there is an increased likelihood of significant issues arising within these entities. The rationale behind this approach is to ensure that potential problems are identified and addressed promptly, thereby reducing the overall risk to the organization.

In contrast, lower-risk entities may not require the same level of scrutiny or frequent audits, as the probability of encountering serious compliance or operational issues is lower. The focus on risk allows audit resources to be allocated effectively and efficiently, enhancing the overall audit quality and effectiveness.

This risk-based approach also ensures that entities with more complex operations, larger transaction volumes, or a history of compliance issues receive the necessary oversight. Thus, the correct choice reflects a strategic method of prioritizing which audits to conduct more frequently based on the entity's associated risks.