CARO's clause 3(xviii) requires reporting on whether there has been any resignation of the statutory auditors during the year, and if so, whether the incoming auditor has taken into consideration the issues, objections, or concerns raised by the outgoing auditor. This clause only has substance where an actual resignation occurred during the year — it exists specifically to make sure a change of auditor isn't used, intentionally or not, to quietly leave behind unresolved concerns the previous auditor had raised, by the new auditor not knowing about or not following up on them.
What the incoming auditor is actually expected to do
- 01Obtain the outgoing auditor's communication on reasons for resignationProfessional standards and practice require an outgoing auditor to communicate with the incoming one before the engagement is accepted — this communication is the starting point for what this clause asks about.
- 02Identify any specific issues, objections or concerns raisedA qualified prior opinion, a disagreement over an accounting treatment, a control weakness the outgoing auditor had flagged but not yet resolved, or any other specific matter communicated.
- 03Evaluate each one specifically during the current auditNot simply acknowledging receipt of the outgoing auditor's communication, but actually following up — testing whether the matter raised was resolved, remains unresolved, or has a bearing on the current year's opinion.
- 04State the conclusion explicitly in the clause responseConfirming what issues were raised (if any) and how they were addressed in the current audit, not a generic statement that the communication was "reviewed."
An incoming auditor who accepts the engagement without obtaining the outgoing auditor's communication at all, or who receives it but doesn't substantively investigate the matters raised, cannot give a meaningful response to this clause — "the outgoing auditor's issues were considered" has to be a true statement about actual work performed, not a formality stated to satisfy the clause's wording.
Common practice, not a requirement
Where no resignation occurred during the year — the far more common situation — the clause response is that it's not applicable, reached by confirming there was no change in auditor, rather than simply being left blank by default.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- CARO & Companies ActCARO 2020 reporting checklist for statutory auditorsThe topic areas CARO reporting covers, what evidence each one needs, and how the clauses fit together across the audit file.
- Audit documentationEngagement letters: what SA 210 requiresWhat an engagement letter must establish, when it needs renewing, and the gaps most often found on file inspection — undated letters and stale scope.
- Internal audit & IFCSA 240: the auditor's responsibilities relating to fraudSA 240 doesn't make the auditor a fraud investigator. It requires planning and performing the audit as if fraud could exist, and documenting that you did.
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