Explanation:

1st option is incorrect as Estimates committee does not examine the reports of CAG.
The parliament has the responsibility of scrutiny of the Annual accounts and audit reports. Since this is a gigantic task as it involves diverse and specialized nature and may waste a lot of time of parliament, the job has been assigned to specialized Committees viz. Public Accounts Committee (PAC) and the Committee on Public Undertakings (COPU).
Estimates Committee:
The thirty members of this committee are from Lok Sabha only. The Rajya Sabha has no representation in this committee. The chairman of the committee is appointed by the Speaker from amongst its members and he is invariably from the ruling party.
Functions:
To report what economies, improvements in organisation, efficiency and administrative reform consistent with the policy underlying the estimates, can be affected.
To suggest alternative policies in order to bring efficiency and economy in administration.
To examine whether the money is well laid out within the limits of the policy implied in the estimates.
To suggest the form in which the estimates are to be presented to Parliament.

Committee on Public Undertakings
Originally, it had 15 members (10 from the LS and 5 from the RS). However, in 1974, its membership was raised to 22 (15 from the LS and 7 from the RS). The members are elected by the Parliament every year from amongst its members according to the principle of proportional representation by means of a single transferable vote.
Functions:
To examine the reports and accounts of public undertakings.
To examine the reports of the comptroller and auditor general on public undertakings.
To examine whether the affairs of the public undertakings are being managed in accordance with sound business principles and prudent commercial practices.
To exercise such other functions vested in the public accounts committee and the estimates committee in relation to public undertakings which are allotted to it by the Speaker from time to time.

Public Accounts Committee
This committee was setup first in 1921 under the provisions of the Government of India Act of 1919 and has since been in existence.
Functions:
To examine the appropriation accounts and the finance accounts of the Union government and any other accounts laid before the Lok Sabha.
In scrutinising the appropriation accounts and the audit report of CAG on it, the Committee has to satisfy itself that:
the money that has been disbursed was legally available for the applied service or purpose;
the expenditure conforms to the authority that governs it; and
every re-appropriation has been made in accordance with the related rules.
To examine the accounts of state corporations, trading concerns and manufacturing projects and the audit report of CAG on them (except those public undertakings which are allotted to the committee on public undertakings).
To examine the accounts of autonomous and semi-autonomous bodies, the audit of which is conducted by the CAG.
To consider the report of the CAG relating to an audit of any receipts or to examine the accounts of stores and stocks.
To examine money spent on any service during a financial year in excess of the amount granted by the Lok Sabha for that purpose.