A Disturbing Reality: New finance Director Lacks Fundamental Accounting Knowledge

Recently, my company appointed a new finance Director, and I can’t help but share my bewilderment over a few alarming conversations we’ve had. With an impressive résumé boasting over two decades in corporate finance, experience with a Big 4 firm, and an MBA from a well-regarded institution, I expected someone well-versed in critical finance concepts.

However, my initial optimism quickly turned into concern during our monthly closing meeting. As I guided her through our standard procedures, she posed an unexpected question: “Why are we wasting money each month on depreciation expenses when we’re not actually spending anything?” At first, I thought it was a hypothetical test of my knowledge. To my dismay, it became evident that she genuinely didn’t grasp the concept.

I explained that depreciation is a method for allocating the cost of tangible assets over their estimated useful lives, allowing us to align expenses with the revenue generated by these assets. Yet, her bewildered expression told me I hadn’t broken through the fog of confusion. She retorted, “But we’ve already paid for the equipment, so why are we expensing it again?”

Attempting to clarify, I referred to fundamental GAAP principles and provided examples of the associated journal entries. Her response was, “This seems unnecessarily complicated. Can you walk me through it step by step?” It felt surreal to spend 30 minutes on concepts typically covered in an introductory Accounting course.

The conversation took an even more bewildering turn when she questioned why we couldn’t simply expense a new $50K server immediately for a tax write-off instead of amortizing the expense over several years. Despite my explanation of capitalization thresholds and the distinction between assets and expenses, she insisted that we consult our tax advisor because, in her words, “this doesn’t seem right.”

What struck me most is that she’s set to review our financial statements for accuracy ahead of their presentation to the board next week. For context, our company generates $15 million in revenue and operates within the manufacturing sector—not exactly a startup where one might expect such fundamental gaps in knowledge.

To add to my bewilderment, she also expressed confusion about why our cash flow statement didn’t align with the profit and loss statement, which prompted me to clarify that net income is not synonymous with cash flow.

It left me questioning how someone could navigate a 20-year finance career without grasping these essential Accounting principles. Either she’s been