Formally acknowledge and log the risk and choose not to apply mitigating actions because the exposure falls within the entity's risk tolerance is correct.

This option matches the standard concept of risk acceptance where an organization records the risk and consciously decides not to apply controls because the exposure is within its risk appetite or tolerance. Acceptance does not mean ignoring the risk and it usually involves monitoring and possible contingency plans.

Transfer the risk to an external party for example by purchasing insurance or subcontracting the activity is incorrect because that describes risk transfer rather than acceptance. Transferring shifts the burden to another party through contracts or insurance so the original entity reduces its exposure.

Avoid the risk by stopping the activity or removing the source of the risk is incorrect because that is risk avoidance. Avoidance removes the activity that produces the risk and so prevents exposure instead of accepting it.

Implement additional safeguards to reduce the likelihood or impact of the risk is incorrect because that is risk mitigation or reduction. Mitigation seeks to lower likelihood or impact through controls rather than logging the risk and choosing to accept it.

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