The correct answer is: A. Kingston cotton mills case.
The statement “An auditor is a watchdog but not a bloodhound” was given in the decision of the Kingston Cotton Mills case. In this case, the court held that an auditor is not liable for failing to detect fraud, unless the fraud was so obvious that it should have been detected by a reasonable auditor.
The court reasoned that an auditor is not a detective, and that it is not their job to investigate every possible fraud. Instead, their job is to provide reasonable assurance that the financial statements are free from material misstatement. This means that they should only look for fraud that is likely to have a material impact on the financial statements.
The court also noted that it is difficult to detect fraud, even for experienced auditors. Fraudsters are often very good at concealing their activities, and they may even have the cooperation of employees within the company. As a result, it is not realistic to expect auditors to detect all fraud.
The Kingston Cotton Mills case is an important precedent in the law of auditing. It establishes that auditors are not liable for failing to detect fraud, unless the fraud was so obvious that it should have been detected by a reasonable auditor. This means that auditors can focus on their primary job of providing reasonable assurance that the financial statements are free from material misstatement, without having to worry about being sued for every instance of fraud that they fail to detect.
The other options are incorrect because they are not cases in which the statement “An auditor is a watchdog but not a bloodhound” was given.