Title: When Experience Doesn’t Equate to Understanding: A Cautionary Tale in Finance
In a striking episode at our manufacturing firm, we’ve recently encountered a perplexing situation that has left the finance team in disbelief. About six weeks ago, we welcomed a new finance Director, who came highly recommended with an impressive 20-year career in corporate finance, a Big 4 background, and an MBA from a prestigious institution. However, my interactions with her have led me to question how someone with such credentials can struggle with fundamental Accounting concepts.
During our monthly close process, I found myself explaining the ins and outs of depreciation—an essential Accounting principle—to her. She posed a surprising question: “Why do we waste money on depreciation each month when we haven’t made additional expenditures?” Initially, I thought it was a test of my knowledge, but her blank stare quickly dispelled that notion. I detailed how depreciation allows us to allocate the cost of our assets over their useful lives, helping us match expenses with the revenues generated from those assets.
To my astonishment, she responded, “But we’ve already paid for the equipment. Why are we expensing it again?” When I introduced the concept of Generally Accepted Accounting Principles (GAAP) and walked her through the necessary journal entries, she requested a step-by-step explanation, claiming the process seemed overly complicated. I found myself dedicating half an hour to unpacking concepts that are typically covered in the very first accounting course.
Moreover, when I explained why we typically avoid expensing our new $50,000 server outright to obtain a tax benefit in the current year, her suggestion to consult our tax advisor left me even more bewildered. She appeared entirely unconvinced by the importance of capitalization thresholds and the distinction between assets and expenses.
Perhaps the most concerning aspect is that she is tasked with reviewing our financial statements for accuracy prior to their presentation to the board next week. Given that our company generates $15 million in revenue, the expectation is that our finance leadership understands these foundational elements of accounting.
To add to the confusion, she also inquired why our cash flow statement didn’t align with the profit and loss statement, displaying genuine perplexity when I clarified that net income and cash flow are not interchangeable.
As I reflect on this experience, I am left questioning how someone can traverse two decades in finance without grasping such core principles. It’s possible she has thrived in roles where others managed the heavy lifting, or perhaps there’s a trend
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