A Closer Look at Financial Management: When Experience Doesn’t Equal Understanding

Recently, our company welcomed a new finance Director, marking a significant step in our corporate hierarchy. With over two decades of experience in corporate finance, a background with prominent Big Four firms, and an MBA from a distinguished institution, her credentials appear formidable on the surface. However, an incident during our monthly financial close raised some eyebrows and sparked concern among the Accounting team.

As a senior accountant reporting directly to her, I was tasked with guiding her through our monthly closing procedures. During this process, she posed an unexpected question: why are we incurring “wasteful” depreciation expenses each month when there is no cash outflow associated with them?

Initially, I thought she might be probing for deeper insight, testing my knowledge in a playful manner. However, it soon became clear that she genuinely did not grasp the concept. I attempted to clarify, explaining that depreciation serves to allocate the cost of long-term assets over their useful lives. This method aligns expenses with the periods that benefit from the assets, adhering to generally accepted Accounting principles (GAAP). Yet, her response was a blank stare, followed by the bewildering query, “But we already paid for the equipment. Why are we expensing it again?”

When I suggested reviewing the journal entries for a clearer understanding, she requested a step-by-step walkthrough, dismissing these foundational concepts as unnecessarily complicated. This was particularly alarming, considering these principles are typically covered in introductory Accounting courses.

The conversation took another unexpected turn when she questioned why we cannot simply write off our new $50,000 server in a single expense for the sake of a tax reduction this year, instead of amortizing it over multiple periods. After I explained the importance of capitalization thresholds and differentiating between assets and expenses, she insisted on consulting our tax advisor, indicating her skepticism regarding standard accounting practices.

The situation became even more pressing as she is expected to review our financial statements for accuracy before they are presented to the board next week.

For reference, our company operates in the manufacturing sector with $15 million in annual revenue. This is not a small startup where one may anticipate gaps in accounting knowledge.

Moreover, she expressed confusion when I explained why our cash flow statement did not match the profit and loss (P&L) statement. Her surprise at the distinction between net income and cash flow only compounded my concerns about her qualifications.

I find myself questioning how someone with such extensive experience could lack a