Investors do not fully understand the critical role audit committees play in corporate governance, a group of top-level investors has warned.

The group, including representatives from Morgan Stanley Investment Management, APG Investments, Standard Life Investments, Ernst & Young and Calpers, has produced guidelines for audit committees to plug what it considers a gap in shareholders’ understanding.

Guy Jubb, head of corporate governance at Standard Life Investments, said the group felt that perhaps too much emphasis had been put by investors in recent years on remuneration issues without sufficient concern for control and risk questions, which belong with the audit committee. “Investors need to raise their game in this area”, he said. “We want to help boards and audit committees, but also investors in gaining confidence in what they can and should ask for.”

The guidelines cover issues from the risks and internal controls overseen by the committee, to how it should provide an account of how it considered management judgments of writedowns and impairments.

“These guidelines are a starting point, not tablets of stone”, said Mr Jubb.

“We want audit committees and investors to use these so that we’ll see progress in the coming years, thereby helping to move the debate from the blame game into a restoration of confidence.”

Many of the group’s suggestions relate to credit crunch topics, including the controversy about fair value accounting. Where no market prices exist, investors have become sceptical of some valuations produced by management. The guidelines suggest that the committee consider using independent experts to go over management valuations.

George Diehr, Calpers investment committee chairman, said: “the quality of our work and our ability to reach informed judgments is only as good as the information we receive.”

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