Navigating Leadership Challenges: A Surprising Encounter with Financial Fundamentals

Recently, our firm welcomed a new finance Director, a professional touted for her impressive background in corporate finance, including over two decades of experience, a Big 4 pedigree, and a reputable MBA. As a senior accountant reporting directly to her, I was eager to collaborate and leverage her expertise during our monthly close.

However, just yesterday, I found myself in a rather unexpected situation. While guiding her through the close process, she raised a question that left me momentarily speechless: “Why are we incurring depreciation expenses each month when we didn’t actually spend anything that month?” Initially, I wondered if she was testing my knowledge; after all, depreciation is a fundamental concept in Accounting.

In response, I explained that depreciation is a method used to allocate the cost of an asset over its useful life, allowing us to match our expenses with the revenue generated by those assets. My explanation, aimed at clarifying how this aligns with Generally Accepted Accounting Principles (GAAP), was met with a perplexed look. She countered, “But we have already paid for the equipment. Why do we need to expense it again?”

To ensure clarity, I walked her through the journal entries related to depreciation, dedicating a considerable amount of time to concepts typically covered in the foundational Accounting 101 course. Despite my detailed explanations, she struggled to grasp why we couldn’t simply expense our newly purchased $50,000 server all at once for a tax write-off instead of capitalizing it over time. My explanation regarding capitalization thresholds and the distinction between assets and expenses seemed to raise more questions than it answered.

To add to my bewilderment, she suggested we consult our tax advisor because she felt that our practices didn’t align with her understanding of financial management. This led to profound concerns, especially considering she was preparing to review our financial statements for accuracy ahead of an upcoming board meeting.

For perspective, it’s worth noting that our company is a $15 million revenue manufacturing entity, not a fledgling startup where less formal accounting practices might be expected.

As if that weren’t enough, she also expressed confusion about why our cash flow statement did not match the profit and loss statement. When I clarified that net income and cash flow serve different purposes, her bewilderment only deepened.

This situation leaves me questioning how someone with such an extensive career in finance could lack an understanding of these essential principles. It raises concerns about whether she has merely coasting through roles