Title: When the Basics of finance Become a Challenge for Leadership: A Cautionary Tale
It’s been approximately six weeks since our company welcomed a new finance Director, and as a senior accountant reporting directly to her, I was eager to collaborate. With over two decades in corporate finance, a background at one of the Big Four firms, and an MBA from a highly regarded institution, her qualifications seemed impressive at first glance.
However, during a recent discussion about our monthly closing process, I encountered a troubling moment. She inquired about the purpose of depreciation expenses, questioning why we were “wasting money every month on costs associated with depreciation even though we weren’t actually spending anything.” Initially, I assumed this was a test of my knowledge, but as I explained that depreciation allocates the cost of assets over their useful lives, allowing us to match expenses with the periods benefiting from those assets, her confusion was evident. She replied with a blank stare and said, “But we’ve already paid for the equipment. Why do we have to expense it again?”
Despite my attempts to clarify this fundamental concept of Generally Accepted Accounting Principles (GAAP) and walking her through the corresponding journal entries, she insisted that the entire process seemed unnecessarily convoluted. I devoted half an hour to explain principles typically covered in introductory Accounting courses, yet her understanding remained elusive.
To complicate matters further, she questioned the rationale behind not expensing our new $50,000 server in order to secure a tax deduction for the current year. When I outlined the significance of capitalization thresholds and the differences between assets and expenses, she suggested we consult with our tax advisor because something about the process “didn’t seem right.”
The situation is concerning, especially given her role in reviewing our financial statements for accuracy before they are presented to the board in the coming week.
For context, our organization is a reputable manufacturing company generating $15 million in revenue—not a small startup where one might expect a more relaxed approach to Accounting practices.
To add to the bewilderment, she expressed confusion over why our cash flow statement did not match the profit and loss statement, revealing her struggle to grasp the fundamental distinction between net income and cash flow.
As I reflect on these interactions, I’m left questioning how someone with such extensive experience in finance could navigate two decades without mastering these essential concepts. It leaves me wondering if she has simply advanced through positions where others handled the actual technical work, or if there may be an issue of inflated qualifications at play.
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