When a Veteran finance Director Lacks Basic Financial Knowledge: A Cautionary Tale
Six weeks ago, our organization welcomed a new finance Director with what appeared to be an impressive background. With over two decades of experience in corporate finance, a history in a Big 4 firm, and an MBA from a well-respected institution, I believed we had secured a knowledgeable leader. However, recent interactions have left me questioning her grasp of fundamental Accounting principles.
During a routine discussion about our monthly closing procedures, she posed a bewildering question: “Why are we incurring monthly depreciation expenses when we aren’t actually spending any money?” Initially, I assumed she was testing my knowledge. Upon explaining that depreciation is a method for allocating the cost of tangible assets over their useful lives—ensuring expenses align with the periods that derive value from these assets—her confused expression told me otherwise.
She responded, “But we already paid for the equipment. Why are we expensing it again?” It was hard to fathom that someone in her position could misunderstand a concept so fundamental to Generally Accepted Accounting Principles (GAAP). When I showed her the associated journal entries, she wanted me to break it down further, insisting that it seemed “unnecessarily complicated.”
Our conversation didn’t stop there. When discussing a recent $50,000 server purchase, she inquired why we couldn’t just write it off immediately for tax purposes instead of amortizing it over time. I explained the importance of capitalization thresholds and the distinction between assets and expenses, but she suggested consulting with our tax advisor, questioning why it couldn’t be simplified.
The most alarming revelation came when she remarked that our cash flow statement “doesn’t match the P&L” and looked puzzled when I tried to clarify that net income and cash flow are not synonymous concepts.
Our company generates $15 million in revenue, operating in the manufacturing sector—not a small startup where one might expect a more relaxed approach to Accounting principles. This raised serious concerns about her qualifications. Either her previous roles involved little hands-on financial work, or there might be serious discrepancies in her resume.
As she prepares to review our financial statements for accuracy before they are presented to the board next week, I can’t help but feel uneasy about her understanding of these critical financial concepts. Understanding the foundations of finance is essential, and we must ensure our leadership encompasses the necessary expertise to guide our organization effectively.
This situation serves as a reminder of the importance of continual learning and adherence to established financial principles
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