KPMG, one of the Big Four accounting firms, made the shock announcement on Friday as it was targeted by a federal parliamentary joint committee grilling the corporate regulator.
Australian Securities and Investments Commission officials ended up confirming in real time the regulator had been investigating since April after being pressed by committee chair and Labor senator Deborah O'Neill.
As that happened, KPMG revealed its Australian head Andrew Yates had resigned along with audit head Julian McPherson.
Mr Yates took the fall over the treatment of a whistleblower, after an internal investigation into their allegations was found to have fallen short of the firm's expectations.
"I have been committed to a speak-up culture in our firm, it is clear that in this case we have let ourselves down and I take accountability," Mr Yates said in a statement.
The ongoing internal probe revealed a separate incident in which documents containing client information were inappropriately shared internally.
There were also allegations of an inappropriate remark in a team setting about the sharing of client information.
"Matters have arisen for which I am responsible and I take accountability," Mr McPherson said.
The three conduct matters were all raised by the whistleblower.
"We commit to learning from this process to ensure we create an environment where it is safe and easy to surface concerns that will be acted upon," KPMG chair Martin Sheppard said.
"KPMG apologises to the clients whose information was not handled with the care and respect they expect from us."
Before the statement, Senator O'Neill referred - under parliamentary privilege - to a letter received by the committee from Lendlease chief executive Tony Lombardo, which she then tabled.
It raised allegations of KPMG personnel on the audit team for the major developer "retaining and utilising access to audit tender pictures in Lendlease board papers to inform their tender for Westpac's audit", she said.
"Lendlease has advised KPMG that the actions of its employees are not acceptable and is in discussions with KPMG as to the action to be taken," Mr Lombardo wrote in the document dated April 30.
Asked for his response, ASIC chair Joe Longo said there appeared to be a breach of what would normally occur between an auditor and a client.
"As the letter itself points out, this is something that Lendlease and KPMG are going to have to sort out between themselves," he told the committee.
Senator O'Neill posited that the allegations would raise alarm among users of KPMG's registered company auditor services.
Commissioner Kate O'Rourke then told the hearing ASIC had begun a preliminary investigation into the conduct of at least three KPMG registered company auditors.
She stressed the investigation related to the auditors rather than the firm.
"We commenced these inquiries after a meeting with KPMG on the 14th of April, and then after receiving further anonymised, in that case, information in writing from KPMG, on the 29th of April."
Regarding KPMG's own investigation, deputy chair Sarah Court said the regulator had issued a number of notices to KPMG for the production of information.
"We have been informed by KPMG that they intend to claim legal professional privilege," she said, noting it was the firm's legal right.
Senator O'Neill took umbrage at this, arguing it would be "incumbent upon those remaining at KPMG to co-operate fully with ASIC and not seek to abuse legal professional privilege in a way that we have seen as a technique (by others) in the past".
Ms Court said ASIC was "onto this" and would exercise its statutory powers in relation to the auditors.
It was an eventful hearing for Mr Longo, who finishes up as ASIC chair on Sunday and will be succeeded by Ms Court.
