A Challenging Encounter with Our New finance Director: Understanding Depreciation

In a recent turn of events at our manufacturing company, we welcomed a new finance Director with an impressive background—over 20 years in corporate finance, a prestigious Big 4 experience, and an MBA from a well-regarded program. However, as the senior accountant reporting directly to her, I was taken aback by her unexpected lack of fundamental Accounting knowledge, particularly regarding depreciation.

Just yesterday, while walking her through our monthly close process, an intriguing question arose: “Why do we waste money on depreciation expenses each month if we’re not actually spending anything?” Initially, I thought she might have been testing my understanding. After providing a clear explanation of how depreciation allocates the cost of assets over their useful lives, thereby aligning expenses with the periods that benefit from those assets, I was met with a blank stare. She simply replied, “But we already paid for the equipment, so why are we expensing it again?”

After demonstrating the journal entries and referencing GAAP principles, I found myself diving into what should be foundational Accounting concepts. As I attempted to clarify the rationale, I could sense that she was grappling with the basics. The conversation even veered into a discussion about our new $50K server, where she proposed expensing the cost upfront for a tax write-off this year, rather than spreading it out over time. Despite my attempts to articulate the reasoning behind capitalization thresholds and expense classification, she suggested we consult with the tax expert, expressing uncertainty about our approach.

As if that weren’t enough, she raised another perplexing question regarding our cash flow statement, expressing confusion about why it didn’t align with the Profit & Loss statement. When I explained the distinction between net income and cash flow, it was clear that these fundamental differences were still unclear to her.

For context, our company boasts a revenue of $15 million, indicating a more substantial operation that typically expects a strong grasp of financial principles. Given her extensive experience, one can’t help but wonder how she navigated two decades in the finance field without internalizing these essential concepts. Whether it’s a case of someone leveraging an impressive resume without the knowledge to back it up, or perhaps operating in roles detached from technical Accounting tasks, the situation is certainly concerning.

As we prepare our financial statements for board review next week, I find myself reflecting on the quality of leadership in finance and the importance of fundamental knowledge in these roles. Ultimately, this experience