Is Your finance Director Out of Touch with Basic Accounting Principles?

Recently, my company welcomed a new finance Director with more than two decades of experience in corporate finance, a background with one of the Big Four Accounting firms, and an MBA from a distinguished institution. Despite this impressive résumé, I’ve found myself increasingly perplexed by her fundamental misunderstandings regarding basic Accounting concepts.

As a senior accountant reporting directly to her, I’ve been tasked with guiding her through our company’s monthly closing procedures. During a recent meeting, she posed a question that caught me off guard: “Why are we wasting money every month on depreciation expenses when we’re not spending anything?” Initially, I assumed she was joking or testing my knowledge.

To clarify, I delved into the rationale behind depreciation. I explained that it allows us to spread the cost of our assets across their useful lives, aligning expenses with the revenues generated from those assets. Her reaction was unsettling—a blank stare, followed by a query about why we would expense something we have already purchased.

When I referenced the generally accepted accounting principles (GAAP) and attempted to walk her through the necessary journal entries, she requested a step-by-step breakdown, expressing that the process seemed “unduly complex.” I dedicated 30 minutes to explaining concepts typically covered in an introductory accounting course.

Her confusion didn’t stop there. She also questioned why we couldn’t simply expense our new $50,000 server to receive a tax write-off in the current year instead of accumulating depreciation over time. When I explained the importance of capitalization thresholds and the distinction between an asset and an expense, she suggested we consult with our tax advisor, indicating her skepticism about our established practices.

Perhaps the most alarming part of this situation is that she is expected to review our financial statements for accuracy prior to their presentation to the board next week.

For context, our organization generates $15 million in revenue as a manufacturing company—far from a small startup where one might anticipate a more relaxed approach to accounting procedures.

To compound the bewilderment, she expressed confusion over why our cash flow statement didn’t align with the profit and loss statement. When I attempted to explain the difference between net income and cash flow, her bewilderment deepened.

As someone who has worked closely with these principles, I find it hard to fathom how anyone could navigate 20 years in finance while lacking such fundamental understanding. It raises questions about whether she has merely been coasting in positions where others managed the detailed work, or if