When Your New finance Director Misses the Mark on Depreciation: A Candid Reflection

Recently, our company welcomed a new finance Director, bringing along a wealth of experience that seemed promising on paper. With over 20 years in corporate finance, a background with a Big 4 firm, and an MBA from a prestigious institution, I expected a strong leader. However, my perception was quickly challenged during our recent monthly close process.

While guiding her through our procedures, she posed an unexpected question: “Why are we wasting money on depreciation expenses every month when we aren’t actually spending anything?” Initially, I wondered if she was testing my knowledge. I set aside my confusion and articulated that depreciation is an essential Accounting principle. It helps allocate the cost of our assets over their useful lives, ensuring that our financial statements reflect the costs associated with the revenues they generate.

To my surprise, she seemed perplexed, responding with, “But we already paid for the equipment. Why are we expensing it again?” This was a pivotal moment. I proceeded to explain that understanding depreciation is fundamental to Generally Accepted Accounting Principles (GAAP), supporting the matching principle that aligns expenses with the revenues they help generate. However, my explanation seemed to leave her even more bewildered, as she requested a step-by-step breakdown of concepts covered in introductory Accounting courses.

Our discussion took another turn when she questioned why we couldn’t expense a new $50K server to benefit from a tax write-off this year instead of spreading the costs over time. When I elaborated on capitalization thresholds and the difference between assets and expenses, she suggested we consult our tax advisor because her intuition told her something was amiss.

Adding to my disbelief, she is expected to meticulously review our financial statements for accuracy before they reach the board next week. This situation raised serious concerns, as we are a well-established manufacturing company generating $15M in revenue—a context in which one would expect solid accounting knowledge.

To further accentuate my concerns, she expressed confusion over why our cash flow statement doesn’t align with the profit and loss statement. The revelation that net income isn’t synonymous with cash flow appeared to baffle her, underscoring a troubling gap in her understanding of fundamental finance concepts.

In all honesty, I’m left questioning how someone could navigate 20 years in finance without grasping these basic principles. It raises troubling possibilities—whether she was merely coasting in previous roles while others handled the technical aspects of finance or if there might be