KPMG has been dumped as the incoming auditor of Macquarie Group, costing the firm a contract that was expected to be worth $700 million over the next decade and marking the biggest single financial blow yet from its whistleblower scandal.

Macquarie told the ASX on Wednesday afternoon that it had determined to “no longer recommend the appointment of KPMG as auditor” at next year’s shareholder meeting, meaning it will instead retain rival firm PwC.

The announcement comes the same week that KPMG cut 380 employees and partners in what is expected to be just the first wave of job losses following the whistleblower scandal. Those cuts were concentrated in its consulting division, but with major contract losses the audit section will require fewer staff.

In a statement, Macquarie’s spokesman said the decision followed the scrutiny of KPMG Australia’s audit practice, including by a parliamentary committee investigation.

“It also follows Macquarie’s formal enquiries of KPMG to consider its capacity to deliver the audit, as well as the nature and impact of ongoing issues at KPMG Australia,” the Macquarie spokesman said.

The firm has been in turmoil since a whistleblower revealed that some of its most senior partners had accessed confidential client data to win new business – a serious breach of trust. Auditors require unfettered access to customer information to do their work, which is essential to the integrity of financial markets.

Macquarie said its directors also hold concerns about KPMG’s capacity to deliver the audit, given several key members of the proposed KPMG Australia audit team have departed, “and culture, including a culture that transparently discloses issues”.

Macquarie’s audit contract is the country’s largest because of the complexity of the banking, investment and trading giant’s business.

KPMG said that while it was disappointed by the outcome, it respected the decision taken by Macquarie.

“Today’s announcement by Macquarie is a clear reminder that the consequences of our past failings are real,” said KPMG chief executive John Sams. “Rebuilding trust will require sustained action, transparency and time.”

Sams said Macquarie’s decision showed why KPMG had to change and cited work under way including major leadership changes and co-operation with the parliamentary investigation.

Lendlease was the first KPMG audit client to announce plans to dump the firm after the scandal came to light.

KPMG has already sacked one partner over the scandal – former chief operating officer Eileen Hoggett – while others have resigned over the firm’s handling of the matter.

That includes former chairman Martin Sheppard, ex-chief executive Andrew Yates and former audit head Julian McPherson, who first received the whistleblower complaint more than two years ago.

Kim Lawry, a former senior audit partner, resigned after new client Westpac demanded she be removed from its financial accounts, but she has become embroiled in further turmoil since a screenshot of the Lendlease board documents was found on her phone by the ongoing investigation.

Lawry told a parliamentary inquiry that she had nothing to gain by disclosing client information, and did not recall having a screenshot of Lendlease papers on her phone. “It’s been well established that the information wasn’t used for any commercial gain,” she said at the time.

Hoggett was sacked after the law firm Allens uncovered her emails confirming printouts of the Lendlease documents had been stored in her locker and shared with other staff bidding for new business.

Hoggett has previously said she was still trying to understand the reason for her ouster, which she said was a “significant financial penalty”.

The Macquarie contract loss may be the trigger for the next round of redundancies in an echo of what PwC went through during its tax leaks scandal in 2023, when its staff shared with clients confidential information about a coming government policy.

PwC announced plans to cut hundreds of staff the same day Westpac ended a 20-year relationship with the audit firm that had generated more than $70 million in fees over the previous two years alone.

Westpac board member and former KPMG partner Peter Nash stepped down last month from the bank to limit any “ongoing distraction” caused by questions about his role in the firm winning the bank’s lucrative audit work in 2024.

Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.Connect via email.