Navigating the Challenges of Corporate finance: A Cautionary Tale

Recently, our organization welcomed a new finance Director, bringing with her a background that many would consider impressive. With over 20 years in corporate finance, experience at a Big 4 firm, and an MBA from a reputable institution, expectations were high. However, my experience as a senior accountant in this transition has raised some eyebrows and, frankly, concerns.

During a recent review of our monthly close process, I encountered a surprising moment that left me questioning her grasp of fundamental Accounting principles. When discussing depreciation—a common aspect of asset management—she inquired why we recorded what she perceived as a “waste” of money on depreciation expenses when we had already purchased the equipment.

Initially, I suspected she was testing my knowledge. I explained that depreciation allows us to distribute the cost of an asset over its useful life, ensuring our financial records accurately reflect the expense in alignment with the benefits derived from that asset. To my surprise, her response was one of confusion; she couldn’t see why we would expense something that we had already paid for.

Despite my efforts to clarify these basic concepts of Generally Accepted Accounting Principles (GAAP), I found myself spending half an hour walking her through journal entries and the rationale behind our Accounting practices. It was disconcerting to realize that such principles, typically covered in introductory accounting courses, were not familiar to her.

The situation escalated when she questioned why we couldn’t immediately expense a significant asset—a $50,000 server—to secure a tax write-off for the current fiscal year instead of capitalizing it and amortizing it over several years. After explaining the distinction between capital assets and regular expenses and discussing our capitalization thresholds, she suggested we should consult our tax advisor for clarity on what she felt was a misunderstanding.

To add to the complexity of this situation, she is expected to review our financial statements for accuracy before presenting them to the board next week. The stakes are high for a company of our size—a manufacturing firm generating $15 million in revenue—not exactly a small startup where basic accounting principles might fly under the radar.

Additionally, her inquiries regarding our cash flow statement and its relationship to the P&L further indicate a misunderstanding of fundamental financial concepts. She expressed confusion over why net income does not equate to cash flow, which only added to my concern about her qualifications.

Reflecting on this experience, I can’t help but question how someone could navigate a two-decade career in finance while