When Expertise Falls Short: A Cautionary Tale in finance Leadership

Recently, our company welcomed a new finance Director, who unfortunately is struggling with some fundamental Accounting principles. As a senior accountant reporting directly to her, it’s been eye-opening to witness the gaps in knowledge despite her extensive background—over two decades in corporate finance, experience at a Big 4 firm, and an MBA from a well-regarded institution.

Just yesterday, I was guiding her through our monthly closing process when she raised a baffling question: Why are we “wasting money every month on depreciation expenses if we’re not actually spending anything”? Initially, I thought she was testing my knowledge. However, as I explained the concept of depreciation—its purpose of allocating an asset’s cost over its useful life to align expenses with the revenue those assets generate—her confusion only deepened. She candidly remarked, “But we already paid for the equipment. Why are we expensing it again?”

When I referenced basic Generally Accepted Accounting Principles (GAAP) and attempted to illustrate the journal entries involved, she requested a step-by-step walkthrough, expressing that it seemed “unnecessarily complicated.” After spending about half an hour explaining concepts typically covered in introductory Accounting courses, I was still met with bewilderment.

She also questioned why we couldn’t simply expense a new $50,000 server to claim a tax deduction for the current year rather than spreading the cost over multiple years. Despite my explanation regarding capitalization thresholds and the distinction between an asset and an expense, she suggested we consult with our tax advisor to verify if this practice was correct.

The most surprising part? She is expected to review our financial statements for accuracy before presenting them to the board next week.

For perspective, our company generates $15 million in revenue, far from the confines of a small startup where such knowledge gaps might be more understandable.

To add another layer to the situation, she asked why our cash flow statement doesn’t align with the profit and loss statement, showing genuine confusion when I clarified that net income does not equate to cash flow.

This experience has left me questioning how someone with her extensive background in finance could lack such critical foundational knowledge. It raises concerns about whether she has merely coasted through her past roles, relying on others to handle the intricacies of the work, or if her credentials have been exaggerated.

In the realm of finance, understanding the basics is essential, not only for the smooth operation of the team but also for the