diff --git a/pkg/provider/podsTracker_test.go b/pkg/provider/podsTracker_test.go
index 1ccec279..19e0c490 100644
--- a/pkg/provider/podsTracker_test.go
+++ b/pkg/provider/podsTracker_test.go
@@ -4,11 +4,15 @@ import (
 	"context"
 	"strings"
 	"testing"
+	"time"
 
+	azaciv2 "github.com/Azure/azure-sdk-for-go/sdk/resourcemanager/containerinstance/armcontainerinstance/v2"
 	"github.com/golang/mock/gomock"
 	"github.com/google/uuid"
 	testsutil "github.com/virtual-kubelet/azure-aci/pkg/tests"
+	"github.com/virtual-kubelet/virtual-kubelet/errdefs"
 	"gotest.tools/assert"
+	is "gotest.tools/assert/cmp"
 	v1 "k8s.io/api/core/v1"
 )
 
@@ -59,3 +63,98 @@ func TestUpdatePodStatus(t *testing.T) {
 		})
 	}
 }
+
+func TestProcessPodUpdates(t *testing.T) {
+	podName := "pod-" + uuid.New().String()
+	podNamespace := "ns-" + uuid.New().String()
+
+	mockCtrl := gomock.NewController(t)
+	defer mockCtrl.Finish()
+
+	aciMocks := createNewACIMock()
+
+	aciProvider, err := createTestProvider(aciMocks, NewMockConfigMapLister(mockCtrl),
+		NewMockSecretLister(mockCtrl), NewMockPodLister(mockCtrl))
+	if err != nil {
+		t.Fatal("failed to create the test provider", err)
+	}
+
+	pod := testsutil.CreatePodObj(podName, podNamespace)
+	containersList := testsutil.CreateACIContainersListObj(runningState, "Initializing",
+		testsutil.CgCreationTime.Add(time.Second*2), testsutil.CgCreationTime.Add(time.Second*3),
+		true, true, true)
+
+	cases := []struct {
+		description             string
+		podPhase                v1.PodPhase
+		getContainerGroupMock   func(ctx context.Context, resourceGroup, namespace, name, nodeName string) (*azaciv2.ContainerGroup, error)
+		shouldProcessPodUpdates bool
+	}{
+		{
+			description: "Pod is updated after retrieving the pod status from the provider",
+			podPhase:    v1.PodPending,
+			getContainerGroupMock: func(ctx context.Context, resourceGroup, namespace, name, nodeName string) (*azaciv2.ContainerGroup, error) {
+				return testsutil.CreateContainerGroupObj(podName, podNamespace, "Succeeded", containersList, "Succeeded"), nil
+			},
+			shouldProcessPodUpdates: true,
+		},
+		{
+			description: "Pod is updated after provider cannot retrieve the pod status but the pod is in a running state",
+			podPhase:    v1.PodRunning,
+			getContainerGroupMock: func(ctx context.Context, resourceGroup, namespace, name, nodeName string) (*azaciv2.ContainerGroup, error) {
+				return nil, errdefs.NotFound("cg is not found")
+			},
+			shouldProcessPodUpdates: true,
+		},
+		{
+			description:             "Pod status update is skipped because pod has reached a failed phase",
+			podPhase:                v1.PodFailed,
+			shouldProcessPodUpdates: false,
+		},
+		{
+			description: "Pod is not updated because pod status could not be retrieved from the provider and pod is not in running phase",
+			podPhase:    v1.PodPending,
+			getContainerGroupMock: func(ctx context.Context, resourceGroup, namespace, name, nodeName string) (*azaciv2.ContainerGroup, error) {
+				return nil, errdefs.NotFound("cg is not found")
+			},
+			shouldProcessPodUpdates: false,
+		},
+	}
+
+	for _, tc := range cases {
+		t.Run(tc.description, func(t *testing.T) {
+			pod.Status.Phase = tc.podPhase
+			aciMocks.MockGetContainerGroupInfo = tc.getContainerGroupMock
+
+			podLister := NewMockPodLister(mockCtrl)
+
+			podsTracker := &PodsTracker{
+				pods:     podLister,
+				updateCb: func(p *v1.Pod) {},
+				handler:  aciProvider,
+			}
+
+			podUpdated := podsTracker.processPodUpdates(context.Background(), pod)
+
+			if !tc.shouldProcessPodUpdates {
+				assert.Equal(t, podUpdated, false, "pod should not be updated because it was not processed")
+			} else {
+				assert.Equal(t, podUpdated, true, "pod should be updated")
+
+				if tc.podPhase == v1.PodPending {
+					assert.Equal(t, pod.Status.Phase, v1.PodSucceeded, "Pod phase should be set to succeeded")
+					assert.Check(t, pod.Status.Conditions != nil, "podStatus conditions should be set")
+					assert.Check(t, pod.Status.StartTime != nil, "podStatus start time should be set")
+					assert.Check(t, pod.Status.ContainerStatuses != nil, "podStatus container statuses should be set")
+					assert.Check(t, is.Equal(len(pod.Status.Conditions), 3), "3 pod conditions should be present")
+				}
+
+				if tc.podPhase == v1.PodRunning {
+					assert.Equal(t, pod.Status.Phase, v1.PodFailed, "Pod status was not found so the pod phase should be set to failed")
+					assert.Equal(t, pod.Status.Reason, statusReasonNotFound, "Pod status was not found so the pod reason should be set to not found")
+					assert.Equal(t, pod.Status.Message, statusMessageNotFound, "Pod status was not found so the pod message should be set to not found")
+				}
+			}
+		})
+	}
+}