When Your finance Director Needs a Crash Course in Depreciation: A Cautionary Tale

About six weeks ago, our organization welcomed a new finance Director whose credentials initially inspired confidence. With over 20 years of experience in corporate finance, an impressive background at a Big 4 Accounting firm, and an MBA from a respected institution, she seemed like a strong addition to our team. However, a recent interaction has left me both concerned and puzzled.

During a walkthrough of our monthly closing procedures, I was taken aback when she inquired about the rationale behind what she described as “wasting money every month on depreciation expenses,” asserting that no actual money was being spent. My first instinct was to assume this was a hypothetical scenario or a test of my knowledge. After all, depreciation is a core element of financial Accounting, designed to spread the cost of an asset over its useful life, aligning expenses with the corresponding benefits received from that asset.

Her continued confusion, however, was evident when she asked, “But we already paid for the equipment. Why are we expensing it again?” In response, I referenced the principles of Generally Accepted Accounting Principles (GAAP) and presented the relevant journal entries, expecting her to grasp the fundamental concepts that are typically covered in introductory accounting courses. To my surprise, she requested a step-by-step breakdown, claiming it felt unnecessarily complex. We ended up spending an exhaustive 30 minutes on topics that should be considered common knowledge in the field.

The conversation took another turn when she questioned the rationale behind capitalizing our new $50,000 server instead of expensing it all at once to maximize our tax write-off for the current year. When I explained the concept of capitalization thresholds and the distinction between assets and expenses, she suggested I consult our tax advisor, expressing disbelief that our current approach was correct.

Perhaps most alarming is the fact that she is responsible for reviewing our financial statements for accuracy before they are submitted to the board next week. Context is essential here; our company generates $15 million in revenue within the manufacturing sector, where one would not typically expect such fundamental misunderstandings in financial management.

As if this didn’t raise enough red flags, she also expressed confusion over why our cash flow statement did not align with the Profit and Loss statement. I clarified that net income is distinct from cash flow, but her bewilderment remained.

This experience has left me questioning how someone with two decades of experience in finance could lack such essential knowledge. It raises concerns about