Navigating the Nuances of finance: When Leadership Lacks Basic Understanding

Six weeks ago, our company welcomed a new finance Director, possessing an esteemed background that includes over two decades in corporate finance, a stint at a Big 4 firm, and an MBA from a well-respected institution. As a senior accountant reporting directly to her, I initially felt optimistic about the fresh perspective she might bring. However, my expectations took a surprising turn when our routine monthly close process shed light on some concerning gaps in her financial knowledge.

During our discussions, she posed a question that left me momentarily speechless: why we seemed to “waste money each month on depreciation expenses despite not actually spending anything.” At first, I assumed she was testing my knowledge. I seized the opportunity to explain the rationale behind depreciation, emphasizing how it allocates the cost of assets over their useful lives—effectively matching expenditures with the periods that benefit from those assets. Unfortunately, her response was one of confusion, as she remarked, “But we already paid for the equipment. Why are we expensing it again?”

In an attempt to guide her through the basics of Generally Accepted Accounting Principles (GAAP), I took the time to walk her through relevant journal entries. What should have taken a few minutes turned into a prolonged discussion, with her expressing disbelief at the complexity of what I consider fundamental principles covered in the introductory Accounting curriculum.

Her inquiries continued, highlighting a troubling disconnect from essential financial concepts. For instance, she questioned why we couldn’t simply expense a newly acquired $50,000 server for an immediate tax write-off instead of spreading the expense over several years. When I tried to clarify the significance of capitalization thresholds and the differences between assets and expenses, she suggested we seek validation from our tax advisor, implying that my explanation was somehow suspect.

The most alarming moment came when she expressed her confusion over our cash flow statement, claiming it didn’t align with the Profit and Loss statement. I explained that net income does not equate to cash flow, but her bewilderment only deepened.

This situation begs the question: how did someone with 20 years in finance reach a leadership position without grasping these foundational concepts? It raises further doubts about the authenticity of her impressive resume. Is it possible she has navigated her career relying on more proficient colleagues to handle complicated financial tasks, or is there an issue of inflated credentials at play?

For context, our company is a well-established manufacturing entity with $15 million in