c. Which of the following best describes the element of inherent risk that underlies the application of GAAS, specifically the standards of field work and reporting? 1) Cash audit work may have to be carried out in a more conclusive manner than inventory audit work 2) Intercompany transactions are usually subject to less detailed scrutiny than arm's length transaction with outside parties 3) Inventories may require more attention by the auditor or an engagement for a merchandising enterprise than on an engagement for a public utility 4) The scope of the audit need not be expanded it misstatements that arouse suspicion of fraud are of relatively insignificant amounts