Can you imagine three seemingly innocuous letters, and one numeral, causing such consternation! Normally such a combination would be an instant turn-off. But the planned introduction of a new accounting rule, FRS17, for pensions, has caused an uproar.

It has been wrongly blamed for the move by some companies from defined-benefit pensions (the pension based on final salary) to defined-contribution pensions (no guaranteed level of pension). But FRS17 does not change the underlying value of the pension fund, or its performance, or the constituent parts. Yet it has been blamed. FRS17 is clearly the scapegoat.

Prior to September 11th, companies have had the benefit of stock market booms. So surpluses were built up in pension funds allowing those companies to take a break (or reduction) in pension contributions, thereby boosting earnings. Since stock markets collapsed on September 11th, and the poor performance of pension funds, many companies have been reassessing the high costs of defined-benefit pensions.

Higher average life expectancies have also been blamed but actuaries would, in any event, have built this into their calculations.

In the US they are talking about the "pension bomb" and that has nothing to do with a changed accounting rule. Instead, with their much better disclosure rules, they are facing reality.

A number of companies - General Electric, General Motors, DuPont, Dow Chemical, Caterpillar, US Steel, Exxon and Ford, for example - have warned about increased pension expenses.

For too long, pension accounting gymnastics in the US have been used to bolster earnings due to huge surpluses, but these have largely been transparent. For many, those lazy days are over but some reckon they have sufficient surpluses to continue the gloss for some time.

In Britain, where the new accounting rule originated, Amicus, the union for skilled and professional people, has portrayed a grim outlook for pensioners. The Confederation of British Industry (CBI) has asked for FRS17 to be amended.

The rule requires firms to base the valuation of pension fund assets on the market values on the companies' year-end dates. The CBI wants the valuation of the assets to be based on the average market value over a period of up to three years.

In the Republic, SIPTU, the State's largest trade union, has called on pension fund trustees not to implement the new accounting rule and has decided not to comply with the rule in its own accounts. However, SIPTU's call for non-compliance has been rightly challenged by the Association of Chartered Certified Accountants in Ireland, noting that it is not the trustees' responsibility. Instead it is up to the individual companies to comply. Granted, implementation of the standard will mean that the valuation of pension fund assets will reflect short-term fluctuations in stock markets. And that could influence the ability to pay dividends.

But if SIPTU goes ahead with its threat, and if companies follow, their accounts would be qualified as not providing a true and fair view. That would make a mockery of audit statements and companies should not go down this lonely path.

Granted there have been the rare times when an accounting standard was ignored by some companies but there was a very good reason for doing so. The ludicrous rule on inflation accounting, for example, was rightly resisted as it was so subjective. It died a quick death.

In contrast, FRS17 is about facts. It creates greater transparency. Surely accounts should reflect the true position at a company's year end?

SIPTU has made the point that the new rule created an inappropriate link with the financial affairs of individual companies and drove employees towards defined-contributions rather than defined-benefit schemes. However, it could be argued that FRS17 has created an appropriate link. The funding of pensions is very much part of the running costs of firms. Certainly pensions should be viewed - as they are - as long-term investments, and it is to be hoped that with the annual valuations, trustees do not shift their stance to a short-term view.

Already one large retailer, Boots, has jumped for cover by shifting all the assets of its pension fund into bonds to match the liabilities of its members last year. It's latest results revealed there was a slight drop in the surplus in the fund under FRS17. Boots has argued that the use of bonds has reduced the risk of deficits, fixed the size of the company contributions, reduced management charges and increased the security of the members.

But has this ultra-conservatism denied Boots's employees the historically higher returns over the longer period delivered by shares over bonds? Just think the unthinkable! If Boots's decision was followed by the majority of companies' pension funds, there would be little or no equity investment, development finance would dry up and it would be disastrous - a highly unlikely scenario.

One of the main issues, however, is the dismal performance of pension fund managers. They justify their existence with the questionable comparisons with the movement of various indices. Then they breathe a sigh of relief when they are close to the average (many have been well below, like AIB). This is nonsense. Just doing a random sample would do better. Is it any wonder that companies are starting to sue outside pension managers over bad performance. Sainsbury's for example, is considering legal action against fund management colossus Merrill Lynch for failing to achieve an agreed level of investment performance of its fund. Expect more of these actions. After all, shouldn't pension funds perform better than the average?

Clearly employees in the private sector are facing great uncertainty as more and more companies move into the defined-contribution schemes - Ms Anne Maher, chief executive of the Pensions Board earlier this year estimated 44 per cent were now in defined-contribution schemes - with employees shouldering the risk.

But the feather-bedded public sector employees needn't worry; they will continue to be paid on the final salary basis.