Title: A Surprising Encounter: When a finance Director Lacks Fundamental Knowledge
In the ever-evolving world of finance, one would hope for a seamless transition and clear understanding when a new leader joins the team. However, my recent experience with our new finance Director has left me both bewildered and concerned.
Just over six weeks ago, our company welcomed a new Finance Director who arrived with an impressive background: over 20 years of experience, a stint at a Big Four firm, and an MBA from a well-regarded institution. On paper, she seemed like the perfect fit for our $15M revenue manufacturing company.
However, during our monthly financial close, a glaring gap in her understanding of fundamental Accounting principles surfaced. While walking her through the process, she posed an unexpected question: why do we incur “wasted expenses” on depreciation each month when no actual cash is flowing out? I initially assumed she was testing my knowledge. After all, explaining the concept of depreciation—an essential Accounting principle—shouldn’t be difficult.
I detailed how depreciation allows us to allocate the cost of our assets over their useful lives, matching expenses with the generated benefits. Her response was perplexing; she seemed genuinely confused and responded, “But we already paid for the equipment. Why are we expensing it again?” Despite my attempts to clarify using basic GAAP principles and showing her the necessary journal entries, she asked for a step-by-step breakdown. It was unsettling to dedicate a substantial amount of time explaining concepts typically covered in an introductory Accounting course.
The conversation took another strange turn when she questioned the rationale behind capitalizing our new $50,000 server. Why, she wondered, couldn’t we simply expense it all at once to benefit from a tax write-off this year instead of spreading it over several years? After explaining the distinctions between capital and expense classifications, she inclined that we should “check with the tax guy,” implying a lack of trust in well-established accounting practices.
Adding to my concern was her confusion about why our cash flow statement didn’t align with the profit and loss statement. When I clarified that net income and cash flow are not the same, her bewilderment deepened.
In a corporate environment with significant revenue, it is troubling to encounter someone at the helm of finance lacking foundational knowledge. This raises two possibilities: either she has been coasting through her career, relying on others to handle intricate financial details, or she has overstated her qualifications.
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