Title: Navigating Surprising Knowledge Gaps in finance Leadership
Recently, a rather perplexing situation unfolded in our finance department. Approximately six weeks ago, our company onboarded a new finance Director who boasts an impressive track record: over 20 years in corporate finance, a background with a Big 4 firm, and an MBA from a prestigious institution. Despite these credentials, her grasp of fundamental Accounting principles has raised significant red flags.
During a routine discussion about our monthly closing process, she posed an unexpected question: “Why do we incur depreciation expenses every month when we aren’t spending any money?” Initially, I was taken aback, as I assumed she was testing my knowledge. I proceeded to explain the concept of depreciation—the process of distributing the cost of tangible assets over their useful life to ensure that expenses align with the revenues generated during those periods. To my dismay, she responded with a perplexed stare and remarked, “But we’ve already paid for the equipment. Why should we expense it again?”
When I attempted to clarify further, referencing Generally Accepted Accounting Principles (GAAP) and providing examples of relevant journal entries, she requested a detailed, step-by-step breakdown, labeling the process “unnecessarily complicated.” I found myself spending thirty minutes explaining rudimentary topics typically covered in an introductory Accounting course.
Moreover, she questioned why we couldn’t immediately expense a $50,000 server to secure a tax write-off for the current year, rather than amortizing it over time. Upon explaining the rationale behind capitalization thresholds and differentiating between assets and expenses, she suggested we consult our tax expert, convinced that something was amiss.
What compounded my concern was that she is responsible for reviewing our financial statements for accuracy before they go to the board next week. This responsibility raises questions about the integrity of our financial reporting process.
For context, our company operates within a $15 million revenue manufacturing sector—not a fledgling startup where one might expect to encounter flexible accounting practices.
In addition to the aforementioned incidents, she also expressed confusion regarding the discrepancies between our cash flow statement and the profit and loss (P&L) report, failing to grasp that net income is distinct from cash flow.
I find myself questioning how an experienced finance professional could possess such fundamental misunderstandings after two decades in the industry. It leads me to wonder whether she has inadvertently benefitted from positions where others handled the complex aspects of financial management or if we are witnessing a case of impressive but inflated credentials.
As we navigate this
No responses yet