When Experience Doesn’t Tell the Whole Story: A Cautionary Tale from the finance Department

In the world of finance, it’s often assumed that years of experience and impressive credentials guarantee a deep understanding of fundamental concepts. However, I recently encountered a situation that challenges that assumption. About six weeks ago, our company welcomed a new finance Director, a decision that initially seemed promising. With over 20 years in corporate finance, a background at a Big 4 firm, and an MBA from a reputable institution, she appeared to be an ideal fit for our $15 million revenue manufacturing company.

However, during a routine walk-through of our monthly closing process, I found myself struggling to explain basic financial principles that she seemed unfamiliar with. The moment that stood out the most was when she questioned why we “waste money every month on depreciation expenses when we’re not actually spending anything.”

At first, I thought perhaps it was a tricky question or a test of my knowledge. I patiently explained that depreciation is a method of allocating the cost of tangible assets over their useful lives. It’s a critical practice for matching expenses with the revenues generated from those assets. Despite my efforts, her reaction was one of complete bewilderment. She simply couldn’t understand why we would record depreciation when we had already paid for the equipment.

Our conversation didn’t stop there. When I introduced the concept of Generally Accepted Accounting Principles (GAAP) and showed her our journal entries, she insisted we take it slow, revealing a surprising lack of familiarity with concepts typically covered in introductory Accounting courses.

Adding to my surprise, she inquired about the possibility of expensing a new $50,000 server in order to secure a tax write-off for the current year, rather than capitalizing the cost and spreading it over its life. When I explained capitalization thresholds and the fundamental distinction between an asset and an expense, she proposed that we consult with our tax advisor because the standard practices seemed “off” to her.

To top it all off, she raised a red flag when she questioned why our cash flow statement didn’t align with the Profit & Loss statement, displaying bewilderment upon learning that net income doesn’t equate to cash flow—a fundamental principle in financial Accounting.

This situation has left me pondering how someone with such an extensive background in finance could lack a grasp of these essential concepts. Is it possible she advanced through her career with a degree of reliance on others’ expertise? Or could the allure of a polished resume sometimes obscure genuine understanding