Navigating a Surprising Gap in Financial Acumen: Lessons from a New finance Director

Recently, our organization welcomed a new finance Director with an impressive background—over 20 years in corporate finance, a stint at a prestigious Big 4 firm, and an MBA from a renowned institution. As a senior accountant who reports directly to her, I was optimistic about the contributions she would bring to our financial processes. However, what transpired during a routine monthly close process revealed some unexpected gaps in her understanding of fundamental financial principles.

During our meeting, she expressed confusion over why we incur monthly depreciation expenses. To her, it seemed illogical that we would “waste money every month on depreciation” when no cash was actually being spent. Initially, I thought it was a test to gauge my expertise, so I explained the rationale behind depreciation. I outlined how it allocates the cost of an asset over its useful life, effectively matching expenses to the periods that benefit from it. Her lack of comprehension, however, was evident, as she required further clarification. “But we already paid for the equipment. Why are we expensing it again?” she asked, genuinely perplexed.

I realized that I was explaining concepts typically covered in an introductory Accounting course. Despite my detailed walkthrough, she still regarded the process as unnecessarily complicated. Our discussion took an even more surprising turn when she questioned why we couldn’t simply expense a new $50,000 server for immediate tax benefits instead of spreading the expense over time. When I introduced the concepts of capitalization thresholds and distinguishing between assets and expenses, she suggested consulting our tax expert, believing something was amiss.

Adding to my astonishment, she raised concerns about our cash flow statement, remarking that it “doesn’t match the P&L.” It became abundantly clear that she was struggling with the fundamental concept that net income does not equate to cash flow.

These encounters have made me reevaluate how someone with such an extensive resume could lack a grasp of core financial principles. It raises questions about whether she has coasted through her career, buoyed by colleagues who handled the technical details or if there is a discrepancy in her reported experience.

As we prepare to present financial statements to the board next week, I can’t help but reflect on the importance of foundational knowledge in finance. Our company, with an annual revenue of $15 million, is not a small startup; we operate in a complex industry where an understanding of these basics is crucial.

Ultimately,