Concerns About Our New finance Director’s Understanding of Fundamental Accounting Principles

Recently, our company welcomed a new finance Director, a professional who appeared to bring a wealth of experience—over 20 years in corporate finance, a background with a Big 4 firm, and an MBA from a highly regarded institution. As the senior accountant who reports directly to her, I was eager to see how her expertise would impact our team.

However, during our monthly closing process, an unexpected situation arose that left me quite concerned. When I began to explain depreciation, she expressed bewilderment, questioning the rationale behind what she considered a frivolous expense, stating, “Why are we wasting money every month on depreciation when we’re not actually spending anything?”

Initially, I thought she was testing my knowledge, so I provided a thorough explanation. I described how depreciation serves to allocate the cost of assets over their useful lives, thereby ensuring that expenses align with the periods benefiting from those assets. Regrettably, she seemed unfazed and responded, “But we already paid for the equipment. Why are we expensing it again?”

To clarify, I referenced basic GAAP principles and attempted to walk her through the relevant journal entries. However, her reaction was puzzling; she requested a more straightforward walkthrough, suggesting that the entire concept appeared unnecessarily complicated. I spent half an hour breaking down principles typically introduced in Accounting 101.

The discussion escalated when she questioned why we couldn’t simply expense our new $50,000 server for a tax write-off this year, rather than spreading the expense over time. As I explained the importance of capitalization thresholds and the distinction between asset classification and expenses, she proposed that we consult with our tax accountant, indicating her skepticism about the accuracy of Accounting practices.

What was particularly alarming was that she is tasked with ensuring the accuracy of our financial statements prior to their review by the board next week.

For context, our company generates approximately $15 million in revenue, indicating a level of complexity that one wouldn’t expect in a small startup, where such gaps in knowledge might be more forgivable.

Adding to my concerns, during another segment of our conversation, she inquired why our cash flow statement did not align with the profit and loss statement. She seemed genuinely puzzled when I explained that net income does not equate to cash flow.

Given her extensive background, I am left questioning how someone can attain such a high-level position in finance without a solid grasp of these fundamental concepts. It raises the