A new chief executive arrives, promises “a fresh start,” and—almost on cue—the company’s next results come festooned with impairments, write-downs, and “non-recurring” charges. Investors call it the “kitchen sink” (borrowed from the old expression “everything but the kitchen sink"): the practice of taking as many hits as possible early in a tenure so the new team can reset expectations, lower the earnings base, and later claim credit for an easier rebound. Sometimes it’s courageous housekeeping. Sometimes it’s camouflage. Either way, when the name on the corner office changes, the probability of a kitchen sink rises—and so does the need for investor vigilance.

The New-Broom Temptation

The incentives are obvious. Incoming leaders inherit balance sheets, forecasts, and promises they didn’t make. If the legacy is messy—ill-judged acquisitions, wobbly accounting judgments, or sales incentives that pulled orders forward—the cleanest way to sever the past is to recognize losses now. Boards, auditors, and investors are often more forgiving in the first year; compensation plans are easier to beat if the baseline is low. The market sometimes applauds the purge, especially if it comes with a crisp strategy and cash discipline.

That doesn’t make the charges illegitimate. Asset values really do fall. Projects really do disappoint. But the boundary between prudent resetting and opportunistic dumping is porous, and management intent matters. Your job as a shareholder is to tell the difference.

Where the Sinks Tend to Hide

The ripest territory is goodwill. Years of deal-making can leave a company with an outsized goodwill balance—effectively the premium paid over fair value for acquisitions—sitting atop businesses whose economics have quietly deteriorated. Under both IFRS and U.S. GAAP, goodwill isn’t amortized; it’s tested for impairment. New management with a harsher view of future cash flows can justify a write-down quickly. The pattern is familiar: “strategic review,” revised long-term assumptions, then a charge that may dwarf operating profit. That can be honest recognition of reality—or a convenient reset after overly rosy deal models from a predecessor.

Close behind is capitalized development spending. Under IFRS, once a project passes technical feasibility and certain criteria, development costs can be capitalized and amortized later. That flexibility can make margins look better today. A new team that doubts the commercial potential of those projects, or that tightens criteria, can pull the plug—triggering impairments and higher expensing going forward. Even under U.S. GAAP, where most R&D is expensed, software development and implementation costs can be capitalized in certain cases; those assets deserve the same skepticism.

Inventory is another sink. A company that has long tolerated obsolescence or optimistic standard costs can see a wave of write-downs when the new regime recalibrates demand or tightens costing assumptions. Watch hardware, fashion, and any business with rapid product cycles. Similarly, receivables reserves often expand under fresh eyes if prior management pushed channel stuffing or stretched payment terms; days sales outstanding tend to balloon before they normalize.

Then there are restructuring charges. Some are unavoidable—plant closures, severance, footprint consolidation. Others are “kitchen sink-y”: broad “transformation” buckets that blend real savings with catch-all accruals for everything from IT rationalization to “portfolio simplification.” The vaguer the label and the longer the runway, the more wary you should be. Cookie-jar reserves created today can become tomorrow’s earnings tailwind.

Revenue recognition policies sometimes get an overhaul too. A shift to more conservative cut-off procedures, tighter criteria for software deliverables, or more realistic estimates of rebates and returns can depress near-term revenue while making subsequent comparables easier. Tax is a cousin to this: resetting valuation allowances on deferred tax assets, or recognizing exposures the prior team downplayed, can create a one-time hit that later reverses as profitability improves.

Lastly, don’t ignore leases and long-lived assets. Under modern leasing standards, right-of-use assets and liabilities sit on the balance sheet. A tougher view of store- or site-level profitability can trigger impairments, especially in retail, restaurants, and industrial networks with marginal locations.

Risk vs. Relief: How to Tell What You’re Getting

A kitchen sink can be a healthy purge if it does three things: ties charges to specific, verifiable actions; improves cash flow and returns inside a reasonable window; and comes with transparent, quantitative bridge metrics from “as reported” to “underlying” performance. If a company can say, “We closed 12 facilities, cut 1,000 roles, reduced SKUs by 30%, and will realize $250 million in annual savings by next year”—and then show that savings dropping through to margins—investors can model it.

It’s riskier when the charges are dominated by non-cash impairments with little operational follow-through, or when management heavily emphasizes “adjusted” earnings that exclude not just the one-time clean-up but a rotating cast of costs thereafter. Be particularly skeptical if, after the big bath, guidance still relies on back-half heroics, if working capital deteriorates without explanation, or if “restructuring” becomes a recurring line item. A one-time reset is housekeeping. A perennial reset is culture.

Also consider who is changing. A new CFO is often the catalyst for accounting and control changes; a new CEO without finance leadership turnover may signal more strategic than accounting shifts. External hires tend to be more aggressive than internal successors in calling out the past. Private-equity pedigrees often correlate with a sharper focus on cash and returns, but also with a willingness to take big charges early.

What to Watch in the First 180 Days

The first two quarters matter. Scrutinize the 8-K or press release that accompanies the leadership change for language about “comprehensive reviews” or “portfolio optimization”; those are tells. In the next reporting cycle, look for:

• A reconciliation that disaggregates charges by type, geography, and business unit, with timing for cash vs. non-cash components.
• Revised segment disclosures or new KPIs that align with the strategy rather than mask it.
• Clear capital allocation rules: hurdle rates, buyback vs. debt reduction priorities, and criteria for future M&A.

On the balance sheet, compare goodwill, intangible asset, and capitalized development balances to prior periods; calculate the ratio of goodwill to equity or to operating income to see how exposed you are. On the cash-flow statement, watch restructuring cash outlays and whether working capital improves after the cleanup. If inventory turns and receivable collections don’t get better within a couple of quarters, the sink didn’t fix the plumbing.

The Investor Playbook

There are two disciplined paths. The first is to underwrite the reset and lean in if the valuation already reflects fear. Model earnings power “post-sink” with conservative assumptions, and focus on cash conversion rather than adjusted EPS. If the write-offs are mostly non-cash and the operational plan is concrete, the risk-reward can be attractive.

The second is to stand aside until the new regime posts one clean quarter—reported under its policies, without fresh surprises—and establishes credibility. You’ll miss the early bounce if the market cheers the purge, but you’ll avoid owning a serial sinker. Either strategy beats hoping that “one-time” really means one time.

The Bottom Line

Management changes don’t automatically spell trouble. They do, however, raise the odds of a kitchen-sink quarter—especially when the predecessor left a trail of aggressive M&A with heavy goodwill, generous capitalization of development costs, loose inventory standards, or optimistic revenue practices. Sometimes that’s the medicine the company needs. But the same maneuver can also obscure deeper structural issues and set a low bar for future victory laps.

For investors, the rule is simple: treat every leadership transition as a moment to reassess “kitchen sink” risk. Read the fine print, track the cash, and separate real repair from artful resetting. A new broom can sweep clean—or just push the dirt under a different rug. The difference shows up not in the charge taken today, but in the returns earned tomorrow.