An Unexpected Knowledge Gap in finance: A Cautionary Tale

Recently, our company welcomed a new finance Director, someone who came with an impressive pedigree—over 20 years in corporate finance, an esteemed Big 4 background, and an MBA from a well-regarded institution. As a senior accountant directly reporting to her, I was eager to dive into our monthly financial processes and make a positive impression.

However, an unexpected situation arose during a routine meeting that left me questioning her foundational understanding of core financial concepts. While I was walking her through the monthly closing process, she posed a surprising question: “Why do we waste money every month on depreciation expenses when we’re not actually spending anything?”

Initially, I thought she was testing my knowledge. I proceeded to explain that depreciation is a key Accounting principle that distributes the cost of tangible assets over their useful lives, ensuring our financial statements accurately reflect the true cost of doing business. Yet, her puzzled expression revealed uncertainty. “But we already paid for the equipment. Why are we expensing it again?” she asked.

I then referenced the Generally Accepted Accounting Principles (GAAP) and demonstrated the relevant journal entries, but she requested a detailed step-by-step breakdown. I spent a considerable amount of time—almost half an hour—clarifying concepts that should have been second nature at her level.

The conversation took another turn when she questioned why we couldn’t simply expense a newly acquired $50,000 server for a tax write-off in the current year instead of distributing it over several years. After I explained the importance of capitalization thresholds and the distinction between assets and expenses, she suggested we consult the tax advisor to confirm my explanations, apparently finding them hard to grasp.

To add to my concerns, she is responsible for reviewing our financial statements for accuracy ahead of an upcoming board meeting.

For context, our company is a $15 million revenue manufacturing firm—far from a small startup where more relaxed Accounting practices might be expected.

In addition to those misunderstandings, she also expressed confusion regarding the cash flow statement and its relationship to the profit and loss statement. When I explained that net income and cash flow are not equivalent, I could see the struggle to reconcile this fundamental truth.

This experience has left me pondering how it’s possible for someone to navigate a two-decade-long finance career without grasping such basic principles. It raises unsettling questions: Has she been overlooked while others executed the critical tasks? Or are there inconsistencies in her professional background?

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