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March 24, 2009

Kalavacherla interview: Buckling down

Prabhakar Kalavacherla’s appointment as the first Indian member of the International Accounting Standards Board was closely followed by the confirmation the board will be enlarged to facilitate wider geographic reach. Nicola Maher talks to him about his expectations for his four-year term.

Prabhakar Kalavacherla describes his career as simplistic compared to many of his new colleagues on the International Accounting Standards Board (IASB).

“Some of them served in accounting, some of them as regulators, some of them work in the industry and things like that. For me, for the large part I have been a practising accountant,” he explains.

Kalavacherla was named as a new IASB member in September last year and assumed the role this year.

He was born in India and began his career there, but has since worked in a range of locations around the world.

Immediately prior to assuming the IASB role Kalavacherla was an audit partner at KPMG US, based in San Francisco and specialising in technology and biotechnology.

Kalavacherla’s admission to the board coincides with a decision by the International Accounting Standards Committee Foundation’s trustees to change the composition of the IASB. The board will expand from 14 to 16 members by 2012, with criteria added to ensure geographical diversity.

“I’m an Indian passport holder but I’m a US green card holder… I leave it to the trustees to decide where I come from,” he says.

Kalavacherla started his career working in India for small accounting firms as an accountant.

He cites as a major career highlight the opportunity to work and live in several countries across the globe including Italy, Ireland, France, India and the US.

Top priorities

Kalavacherla believes the current issue of fair value accounting is a priority for everyone, including the IASB, but he warns the board should not lose its focus on bringing more developing countries onto IFRS.

“I think the long term issues is that the board should go back to its business of focusing on what needs to be done to get a common set of standards across all nations,” he says.

“We have learnt that the emerging economies suffer as much as the developing nations in terms of the current stock market, the fair value mess. Thinking that emerging markets are a beast by themselves might not be accurate so the sooner they join onto the international accounting standards [the better],” he explains.

One main challenge for the IASB will be ensuring that when IFRS is implemented, it is done so with no carve outs or changes.

“If you and I have to speak the same language, can we ever get to the same accent? I think that challenge is going to remain forever but of course [the question] is ‘how [could] you minimise it?’ I think that is what [the IASB] needs to focus on,” Kalavacherla explains.

Technology forte

Kalavacherla specialises in the non-financial sector. Technology is his forte and this will be his main focus for his four-year term on the IASB. His ideal focus would be to work specifically on the revenue, and debt and equity standards.

“That would be quite a bit of an achievement,” he says.

The revenue recognition standard is still in the preliminary stages of development, with a discussion paper still open for public comment.

The new standard will replace the existing standards on revenue recognition, IAS 11 Construction Contracts and IAS 18 Revenue, creating a single revenue recognition model that can be applied consistently across a range of industries and geographical regions.

The debt and equity work in progress includes an exposure draft published by the IASB in December, which proposes amendments to IFRS 7 Financial Instruments: Disclosures, which would require entities to provide additional disclosures on all investments in debt instruments, other than those classified in the fair value through profit or loss category.

There is also a project to simplify IAS 32 Financial Instruments: Presentation, which is still in its early stages. Proposed amendments to IAS 32 would require entities to classify certain types of financial instruments as equity.

Kalavacherla has also previously worked on buyer tax and says he would like to focus on income taxes and issues of that nature during his term.

The IASB’s current income tax project is working to reduce the differences between IAS 12 Income Taxes and the US standard, 109 Accounting for Income Taxes, and related US GAAP.

The final standard is due to be issued next year.

Looking to the future

In the light of the current challenges, Kalavacherla insists it is important to focus on the business at hand.

“My view is just to buckle down, get to the business and not get too side tracked with the present issues while there are already enough minds being applied,” he says.

He points to the importance of the IASB remaining on schedule to complete a number of major projects before a raft of new countries adopt or converge with IFRS between 2011 and 2012.

“Many countries are going onto IFRS and we don’t want them to have two transitions. We need to make them get on to the highway of IFRS without any bumps.

“Those should be the focus and hopefully my contribution is to focus on those issues,” he says.

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