A New Challenge in Leadership: When the finance Director Lacks Fundamental Knowledge

Recently, our organization welcomed a new finance Director with an impressive background that boasted over 20 years in corporate finance, a prestigious Big 4 experience, and an MBA from a respected institution. As a senior accountant reporting directly to her, I was optimistic about the fresh perspectives she would bring to our team. However, my enthusiasm quickly turned to disbelief during a recent discussion about our monthly financial close process.

A few days ago, while reviewing our procedures, she expressed confusion regarding the concept of depreciation. She questioned why we “waste money every month on depreciation expenses when we’re not actually spending anything.” Initially, I assumed she was testing my knowledge, so I took the time to clarify that depreciation is a method that allocates the cost of an asset over its useful lifespan, allowing us to match expenses with the periods that benefit from these assets. To my surprise, her response was a puzzled look accompanied by a statement: “But we already paid for the equipment. Why are we expensing it again?”

As I walked her through basic Accounting concepts, including journal entries that reflect our depreciation practices according to Generally Accepted Accounting Principles (GAAP), I sensed increasing frustration on her part. She requested a step-by-step breakdown, claiming that the process seemed unnecessarily complicated. For nearly half an hour, I explained information typically covered in foundational Accounting courses.

The session took a further unexpected turn when she inquired about the rationale behind capitalizing our recent $50,000 server purchase rather than expensing it all at once for a tax deduction this year. When I explained the nuances of capitalization thresholds and the distinction between assets and expenses, she suggested we consult our tax specialist, asserting her doubts about the validity of our approach.

What amplifies my concerns is that she is expected to review and ensure the accuracy of our financial statements prior to their presentation to the board next week.

For context, our company is a manufacturing entity with revenues around $15 million, far from a small startup that might operate with less stringent accounting measures.

That’s not all; she also expressed confusion over why our cash flow statement didn’t align with the Profit and Loss statement. The realization that net income does not equate to cash flow seemed to perplex her further.

These encounters have left me questioning how someone with such an extensive background in finance could lack a grasp of these fundamental principles. It raises the possibility that she may have spent her career in positions where