A Surprising Revelation: New finance Director Lacks Basic Understanding of Depreciation

Recently, our firm welcomed a new finance Director with an impressive background—including over 20 years in corporate finance, an MBA from a reputable institution, and experience at a Big Four firm. As a senior accountant reporting directly to her, I anticipated a seamless transition with valuable insights. However, I was confronted with a surprising reality that has left me bewildered.

During a routine walkthrough of our monthly closing process, she posed a perplexing question: “Why do we incur depreciation expenses every month if we aren’t actually spending any money?” Initially, I thought it was a rhetorical question or perhaps a scenario to test my expertise. When I began explaining the concept of depreciation—allocating the cost of long-term assets over their useful lives to match expenses with the revenue generated—I was met with a blank stare. Her follow-up comment, “But we’ve already paid for the equipment, so why are we recognizing it as an expense again?” illuminated a troubling knowledge gap.

Despite my attempts to clarify basic GAAP principles and providing examples of journal entries, she seemed unable to grasp these foundational concepts. We invested a full 30 minutes attempting to simplify ideas typically covered in an introductory Accounting course.

The conversation took another turn when she expressed disbelief over why we couldn’t simply expense a $50,000 server purchase immediately for a tax write-off instead of distributing its cost over several years. Upon explaining the principles of capitalization thresholds and the differentiation between assets and expenses, she suggested that we reach out to our tax advisor to verify my explanation, as she still found it questionable.

What adds to my concern is that this Finance Director is set to review our financial statements for accuracy prior to their presentation to the board next week.

For context, we operate within a fairly robust industry, generating $15 million in revenue annually—a far cry from the startup environment where one might expect a less formal grasp of Accounting standards.

To complicate matters further, she also asked why our cash flow statement didn’t align with the Profit and Loss (P&L) statement, appearing genuinely puzzled when I differentiated between net income and cash flow.

Given her extensive experience, I am left wondering how she has navigated two decades in finance without a solid understanding of these fundamental principles. It raises critical questions about her past roles—whether she has merely been coasting while others handled the technical aspects or if there’s a more concerning issue with resume authenticity.

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