Navigating the Challenges of Financial Leadership: A Cautionary Tale

Approximately six weeks ago, our team welcomed a new finance Director who arrived with an impressive background, boasting over 20 years in corporate finance, experience at a Big 4 firm, and an MBA from a reputable institution. As a senior accountant reporting directly to her, I was eager to collaborate and learn from her wealth of experience.

However, during a routine discussion about our monthly closing process, I encountered a surprising hurdle. When I mentioned depreciation, she raised an eyebrow and questioned why our company “wastes money every month on depreciation expenses when we aren’t actually spending anything.” Initially, I thought this was a clever test of my knowledge.

I proceeded to explain the concept of depreciation, which involves spreading the cost of an asset over its useful life to accurately reflect expenses in the corresponding financial periods. To my surprise, her response was one of confusion. She asked, “But we already paid for the equipment. Why are we expensing it again?”

When I cited Generally Accepted Accounting Principles (GAAP) and walked her through the journal entries, she requested a step-by-step explanation, asserting that the process seemed needlessly complicated. After dedicating 30 minutes to clarifying concepts typically covered in introductory Accounting courses, I found myself questioning the depth of her understanding.

During our conversation, she also raised an interesting point regarding a new $50,000 server purchase. Instead of considering the long-term benefits of capitalization, she suggested expensing it all at once to maximize this year’s tax deduction. When I introduced the idea of capitalization thresholds and the distinction between assets and expenses, she proposed we consult with our tax advisor, conveying her doubts about the process.

To top it all off, she is responsible for reviewing our financial statements for accuracy ahead of their presentation to the board next week. This revelation raises concerns, especially considering our company is a well-established manufacturing entity with $15 million in revenue, rather than a fledgling startup where one might overlook formal Accounting practices.

Additionally, she expressed confusion as to why our cash flow statement did not align with the profit and loss statement, revealing a fundamental misunderstanding between net income and cash flow.

As I reflect on these interactions, I find myself baffled. How has an individual with such a lengthy career in finance navigated through without grasping these essential concepts? Perhaps she has operated in environments where others managed the technical details, or this situation points to a broader issue of resume exagger