AFTF and ECF
AFTF (Accounting For the Future) and ECF (Expected Cash Flow approach) both involve measurement based on the present value of expected cash flows. AFTF is fundamentally the same as the ECF approach, but more fully developed and more widely targeted. The ECF approach has been restricted in its scope, perhaps in order to more gently introduce a prospective view of accounting. AFTF is unrestrained.
AFTF is, or attempts to be, a complete accounting system. It is designed to replace, not merely supplement, traditional retrospective accounting. It is based specifically on the shareholder perspective rather than the more general pricing perspective of ECF. AFTF abandons "things" as assets or liabilities, unlike ECF, which focuses on specific "things" that need to be evaluated. AFTF’s focus is on decisions and AFTF measures the value of a decision or groups of decisions.
The treatment of risk (variance only) under ECF is unsettled. Although some examples of an approach are given, they are primarily illustrative. The ECF approach seeks to quantify risk aversion in assessing a risk charge for each asset or liability individually. Obviously this cannot be done easily or objectively. Under AFTF the risk question is answered from the shareholder’s perspective by means of the historic cost of capital. The historic cost of capital is applied as a discount rate uniformly for all assets and liabilities. This discount rate is assumed to implicitly contain the capital market’s (shareholder’s) charge for the risk it perceives based on its expectations for cash flows. It consequently does not double charge for risk, a point of concern raised in the ECF development. This may also be required by the FASB general principle that "Interest rates should reflect assumptions that are consistent with those inherent in the estimated cash flows."
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