Navigating Challenges in Financial Leadership: A Cautionary Tale

Recently, our organization welcomed a new finance Director with an impressive background—including over two decades in corporate finance, a tenure at a Big 4 Accounting firm, and an MBA from a well-regarded institution. However, what unfolded during our monthly closing process left me both bewildered and concerned about the basic principles of Accounting that seemed lost on her.

During our discussion, she expressed confusion over our monthly depreciation expense, questioning why we were “wasting money” on it when no cash was being spent. At first, I assumed her inquiry was a probing exercise, perhaps a test of my expertise. I proceeded to explain the fundamental concept of depreciation: it allocates the cost of tangible assets over their useful lives to align expenses with the revenue they generate. To my surprise, her response was one of complete bewilderment. “But we already paid for the equipment. Why are we expensing it again?” she asked.

When I attempted to clarify with the basic principles of Generally Accepted Accounting Principles (GAAP) and showed her the relevant journal entries, she insisted that I break it down further—stating that it seemed “unnecessarily complicated.” I spent nearly half an hour elaborating on concepts that are typically covered in an introductory accounting course.

The conversation took another turn when she questioned why we couldn’t simply expense our new $50,000 server to maximize this year’s tax deduction instead of depreciating it over time. My explanation regarding capitalization thresholds and the distinction between assets and expenses did little to assuage her confusion. She suggested we “check with the tax guy” because the process appeared erroneous to her.

What’s more perplexing is that she is expected to review our financial statements for accuracy ahead of their submission to the board next week. It’s important to note that our company is not a small start-up; we generate approximately $15 million in revenue annually, and we rely on formal accounting practices to guide our financial decisions.

Furthermore, she expressed puzzlement when our cash flow statement did not align with the Profit and Loss (P&L) statement, incredulously asking why net income differed from cash flow.

This experience has prompted me to reflect deeply on her extensive career. It raises questions about how someone can progress through 20 years in finance without grasping these fundamental concepts. Has she been in roles where others tackled the heavy lifting, or is it possible there has been some questionable embellishment regarding her