Title: Concerns About Financial Acumen: A New finance Director’s Surprising Gaps in Knowledge
In recent weeks, our team welcomed a new finance Director who arrived with an impressive background—two decades of experience, a stint at a prestigious firm, and an MBA from a well-respected institution. As a senior accountant reporting directly to her, I was excited about the potential for growth and fresh perspectives she could bring to our finance department. However, I encountered a situation that left me bewildered about her basic understanding of financial principles.
During a routine walkthrough of our monthly closing process, I was taken aback when the new director questioned the rationale behind depreciation expenses, stating, “Why do we waste money on these expenses when we’re not actually spending anything?” Initially, I thought she might have been testing me, so I proceeded to explain how depreciation functions as a means of allocating the cost of tangible assets across their useful lives. This approach aligns expenses with the revenue those assets generate, a foundational concept in Accounting.
Her reaction was one of puzzlement. Despite my detailed explanation, she remained unconvinced and countered, “But we’ve already paid for the equipment. Why do we expense it again?” When I offered to break down the journal entries according to Generally Accepted Accounting Principles (GAAP), her request for a more simplified overview was surprising, considering that these concepts are typically covered in introductory Accounting courses.
The conversation took another unexpected turn when she inquired about the possibility of expensing a new $50K server in the current fiscal year to maximize our tax write-off. Upon discussing capitalization thresholds and the distinction between assets and expenses, she suggested checking with our tax advisor, implying that she was skeptical of this standard practice.
To add to my concerns, she expressed confusion regarding our cash flow statement, exclaiming that it didn’t correspond with the profit and loss (P&L) statement. My explanation that net income does not equate to cash flow seemed to create more questions than answers.
I must emphasize that our firm operates as a $15 million revenue manufacturing company, which, while not colossal, is certainly not a small startup where one might expect a certain degree of ambiguity in financial practices. This has prompted me to reflect on how someone with such an extensive tenure in finance could hold positions lacking a firm grasp of these essential concepts. Are we witnessing a case of resume inflation, or has she merely been coasting through roles where the heavy lifting was managed by others?
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