A Surprising Situation: When a finance Director Struggles with Basic Concepts

Recently, our company welcomed a new finance Director, expecting her to bring a wealth of knowledge and expertise from her impressive 20-year career in corporate finance, including a background with Big 4 firms and an MBA from a respected institution. As a senior accountant who reports directly to her, I was eager to integrate her leadership into our monthly operations.

However, during a routine walk-through of our monthly close process, I encountered a baffling situation that left me questioning her grasp of fundamental financial principles. Her inquiry about depreciation took me by surprise; she remarked on “wasting money each month on depreciation expenses” while suggesting that since we had already paid for the equipment, we shouldn’t be Accounting for it again.

Initially, I assumed she was joking or testing my knowledge. I explained that depreciation is a critical Accounting method that allocates the cost of tangible assets over their useful lives. This approach ensures that expenses accurately align with the periods benefiting from the asset. Unfortunately, her response was one of confusion, as she persisted in questioning the necessity of this practice.

I attempted to clarify further, showing her the journal entries and emphasizing that these concepts are foundational in GAAP (Generally Accepted Accounting Principles). Still, she requested a step-by-step walkthrough, implying the process was overly complicated.

Her lack of understanding continued as she inquired about our recent $50,000 server purchase. She suggested that we should simply expense it all in the current year for immediate tax benefits instead of capitalizing it. I explained the importance of capitalization thresholds and the differentiation between assets and expenses, but her skepticism led her to recommend that we consult our tax advisor “to confirm this approach.”

The situation reached a peak of incredulity when she expressed confusion about why our cash flow statement did not align with our Profit and Loss statement, mistakenly believing that net income should equate to cash flow.

It’s hard to fathom how someone with two decades in finance could struggle with such basic concepts. This raises questions about whether she has been in positions where essential tasks were managed by others or if her impressive resume has some inflated claims.

For context, our company is a well-established manufacturing firm with $15 million in annual revenue, making this level of misunderstanding particularly surprising and concerning, especially given the critical review of our financial statements slated for the board meeting next week.

Navigating such mismatched expectations can prove challenging. As we move forward, I remain hopeful