The Curious Case of a finance Director: When Basics Are a Mystery
Recently, our company welcomed a new finance Director, and with her impressive credentials—over 20 years in corporate finance, a prestigious Big 4 background, and an MBA from a well-regarded institution—we felt optimistic about the direction in which she would lead our financial strategies. However, my experiences over the past few weeks have left me both surprised and concerned.
As a senior accountant reporting directly to her, I had the opportunity to guide her through our monthly closing process. It was during this walkthrough that I encountered a rather unexpected reaction. She inquired about the rationale behind the monthly depreciation expenses, candidly questioning why we were “wasting money” on something that didn’t seem to incur any actual cash outflow.
Initially, I suspected she was testing my knowledge. After all, depreciation is a fundamental Accounting principle that allocates the cost of tangible assets over their useful life, aligning expenses with the revenue generated by these assets. Yet, I was met with a blank stare when I explained this concept. She argued, “But we’ve already paid for the equipment. Why are we expensing it again?”
When I referenced Generally Accepted Accounting Principles (GAAP) and provided the relevant journal entries, I was asked to break it down into simpler terms. This led to an extensive explanation that felt more suited for an introductory Accounting course than for someone in her position.
Things took another unexpected turn when she questioned why we couldn’t expense our new $50K server all at once to benefit from a significant tax write-off for the current fiscal year. Upon clarifying the concept of capitalization thresholds and the distinctions between assets and expenses, she casually suggested we should “check with the tax guy” since this seemed incorrect to her.
Perhaps most alarming was her apparent confusion regarding our cash flow statement not aligning with the Profit & Loss (P&L) statement. She genuinely seemed puzzled when I clarified that net income and cash flow are not synonymous.
This situation raises legitimate concerns about her understanding of fundamental accounting principles. Given that our company generates $15 million in revenue and operates in the manufacturing sector, it’s astounding to consider how someone could navigate two decades in finance without grasping these basic concepts. It leads me to ponder whether she has simply been in positions where the heavy lifting was managed by others, or if there’s a case of inflated resume claims at play.
As we approach the review of our financial statements ahead of
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