Choice "D" is correct. Tracing from the inventory schedule to the inventory tags and the auditor's recorded count sheets verifies the validity (existence) of the items. Note that the correct term for the directional test for existence is "vouch." However, in practice (and on the CPA Exam), the term trace is sometime used interchangeably with the term vouch.
Choice "b" is incorrect. Tracing from inventory tags to the inventory listing schedule verifies the completeness of the schedule, not the existence (or validity) of the items.
Choice "c" is incorrect. Tracing to receiving reports and to vendors' invoices from the inventory tags might be used to verify completeness of purchases or payables.
Choice "a" is incorrect. Tracing from receiving reports and vendors' invoices to the inventory listing are cutoff procedures used to verify completeness of the inventory listing.