## CARO 2020 Clause (xviii) – Resignation of Statutory Auditor

### What the Auditor Must Report

1. Has the statutory auditor resigned during the year?

If No → nothing further to report.
If Yes →

2. Has the incoming (new) auditor considered the issues, objections or concerns raised by the outgoing auditor?

### The Policy Rationale

This clause prevents an auditor from resigning silently to avoid signing a modified report. Under the Companies Act 2013, an outgoing auditor must file a statement with the company and the Registrar (Form ADT-3) explaining the reasons for resignation. The new auditor is expected to review these concerns before accepting the engagement.

### Key Parties

Party	Obligation
Outgoing (resigning) auditor	Must file reasons in Form ADT-3
Incoming (new) auditor	Must review outgoing auditor's concerns before accepting
Reporting auditor (current)	Must state in CARO whether incoming auditor considered those concerns

### Reporting Decision Tree

```

Resignation of statutory auditor during the year?

├── No → State so; clause satisfied

└── Yes

└── Did the incoming auditor consider the issues/objections/concerns

raised by the outgoing auditor?

├── Yes → Report accordingly

└── No / Not verifiable → Report the deficiency

```

Worked example

### Example 1

Example 1 – Resignation with proper handover:

The previous statutory auditor of DEF Ltd. resigned in August 2024 citing disagreement with management over revenue recognition. The new auditor, before accepting the appointment, reviewed the ADT-3 form filed by the outgoing auditor and documented their consideration of the concerns raised.

CARO Reporting: Yes, there was a resignation during the year. The incoming auditor has considered the issues raised by the outgoing auditor.

### Example 2

Example 2 – Resignation without proper handover:

GHI Ltd.'s auditor resigned in October 2024. The new auditor accepted the engagement without reviewing the outgoing auditor's concerns about potential related-party irregularities.

CARO Reporting: Yes, there was a resignation during the year. However, the incoming auditor does not appear to have considered the issues/objections raised by the outgoing auditor — this is a reportable deficiency.

⚠️ Common exam mistakes

Treating this clause as only applicable when the resignation was contentious — it applies to ALL resignations during the year.
Confusing resignation with non-reappointment — this clause covers only mid-term resignations, not completion of term.
Forgetting to check Form ADT-3 as evidence of what concerns the outgoing auditor raised.
Assuming that if the new auditor reviewed the financials, they automatically 'considered' the outgoing auditor's concerns — specific consideration of the ADT-3 issues is required.

Bare-Act text Para 3(xviii) · Companies (Auditor's Report) Order, 2020 (CARO 2020) · click to expand

Whether there has been any resignation of the statutory auditors during the year; if so, whether the incoming auditor has considered the issues, objections or concerns raised by the outgoing auditors.

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CARO 2020 – Resignation of Statutory Auditor (Clause xviii)

Worked example

⚠️ Common exam mistakes