The Surprising Knowledge Gap of a New finance Director
In an unexpected twist during our monthly financial close, I’ve found myself facing a rather perplexing situation with our newly appointed finance Director. We welcomed her to the team about six weeks ago, confident in her extensive experience that boasts over 20 years in corporate finance, a background with one of the Big Four firms, and an MBA from a prestigious university. However, my confidence was shaken when it became clear that some fundamental concepts were lost on her.
During a recent walkthrough of our closing procedures, she expressed confusion about what she referred to as “wasting money” on depreciation expenses every month, questioning why we continually account for these costs despite having already paid for the assets. Initially, I assumed she was testing my knowledge, but her puzzled expression made it clear she was genuinely perplexed.
I took the time to explain that depreciation is a method used to allocate the cost of an asset over its useful life. This Accounting principle, rooted in the Generally Accepted Accounting Principles (GAAP), helps align expenses with the revenue generated in the periods benefiting from those assets. Despite my clear explanation, her response was simply, “But we already paid for the equipment. Why are we expensing it again?”
When I dove deeper into the intricacies of journal entries, I could see her struggling to grasp concepts that should be foundational for anyone in a finance role. Our discussion shifted to asset classification, where she proposed that we should simply expense our new $50K server all at once for a tax write-off instead of adhering to our standard practices of capitalizing such purchases. Her suggestion to verify this with our tax consultant left me questioning whether she had overlooked the importance of understanding the distinction between capital expenditures and ordinary expenses.
To add to the bewilderment, she expressed concern about why our cash flow statement did not match the profit and loss statement, illustrating a fundamental misunderstanding of the different indicators these documents provide. This raises some serious questions: How did someone with such an extensive career in finance misinterpret these essential principles? It feels as though she may have been operating in environments where someone else took the reins on the more nuanced aspects of Accounting, or perhaps there has been some inflation in the details of her resume.
It’s worth noting that we are a manufacturing company with an annual revenue of $15 million, meaning we’re not a fledgling startup where one might expect a more lenient approach to accounting practices. Yet, here we are—facing a
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