A couple of thoughts & suggestions on stealth mechanics as of 0.4.14b.
First, a couple of things that are relatively small and could potentially be incorporated in the game at low risk:
1. When you approach cautiously after a dialogue with potential enemies, the battle doesn't start immediately. Easiest to test this with Aksha and choosing "We'll destroy you!" to avoid CHA check successes. It's rather impolite to be able to surprise in such situations.
2. Holding source of light should make it impossible to sneak around, enemies should spot you easily even if they don't have line of sight. If changed, this could be explained in Orcs tutorial. Probably the best UX would be to automatically switch from weapon+torch/candle to another set or finishing Light spell when character enters cautious mode and ending cautious mode when Light is cast on their equipment or they pull out a torch.
3. When enemies are in range (have line of sight to you or your target) and you cast a spell that is not targeting them, e.g. Sparkle or Firebolt at mana lamps, or using candle to light a wall torch, throwing a torch near them or even casting non-offensive spells like Bless, battle should start anyway as enemies would now be aware of some shenanigans, with same rules for surprise as when targeting an enemy.
4. After attack you should lose cautious mode automatically instead of rolling Stealth. (PHB p.195 Unseen Attackers and Targets)
5. When enemies are about to spot you (as indicated by an orange/red circle growing around cautious icon) and you do something that initiates battle before they are fully aware of your presence, these enemies should not be surprised. In my head this situation could be described like this: they heard or saw something, but haven't warned everybody else yet, because it might have just be a wind or something. Enemies in the back, who were unaware of possible danger, should still be surprised.
6. During random encounters starting positions of enemies circling the party doesn't make sense when they are also surprised. Maybe it would be better if nobody was surprised in such encounters.
And a few larger suggestions, that might or might not improve the game, but might also be too costly to implement at this stage:
7. Natural shadows should be treated as dim light. Not really related to the topic, but Broods in the last location hiding in destroyed buildings shouldn't take 11 damage / turn when in these shadows, right now they are treated as if they were in bright light.
8. When entering cautious mode, characters should roll Stealth and the value should be matched against passive Perception of all enemies you later approach. Solasta's facing rule (not to confuse with D&D facing rules) and sound radius for hiding is okay, I guess, but I'd suggest to increase sight distance and in dim light or darkness allow walking when Stealth roll was better than passive Perception. I'm not sure if revealing Stealth roll to player is a good idea or not, but if revealed, the value should not be changeable by exiting and entering cautious mode again.
9. Enemies should use the same mechanics for stealth PCs use, as vague as it sounds. Thinking how the encounter would look like if player was playing as monsters quickly shows potential issues of some encounters. For example flying snakes in Caer Lem should be spawned behind walls or around corners and should see PCs and initiate battle immediately when line of sight can be drawn between them even if PCs are in cautious mode, unless all PCs are somehow both in shadow and sneaking, in which case they should remain hidden for some time if their Stealth roll was high enough, giving them chance for surprise round. Group roll as descirbed in this video should work fine: https://www.youtube.com/watch?v=XgUEm6_yXCs.