There have been a number of movies that have been released pertaining to current trends in accounting and finance, especially around the 1990's. Examples of some movies would be "Other People's Money", "Boiler Room", and Enron: "The Smartest Guys in the Room". Below I will give a brief overview of the movie "Other People's Money" and state how this relates to our accounting class and accounting in general. I will then give examples and facts to back up my example. Lastly, I give my opinion on the following clips that we watched.
"Other People's Money" is a movie released in 1991, about a Man who targets corporations with undervalued assets and works to obtain a controlling interest in them. Danny DeVito or "Laurence Garfield" notices the downfall in a division called New England Wire and Cable and decides that he wants to gain approval and buy the company. This division is especially appealing to Garfield because they have no debt, no pending lawsuits, valuable assets, a fully funded pension, and a strong liquidity position. In the film the Wire and Cable division has consistently been losing money and its losses have been funded by the profits of the other divisions of the company. Ultimately, Garfield wants to come in and sell the assets making the shareholders money and eventually get rid of the division.
This movie relates to accounting because it brings in the concepts of GAAP, financial statements, ethics, and liquidation. "GAAP" or generally accepted accounting principles are a common set of accounting principles or procedures that companies use to come up with their financial statements. Our accounting 302 class is in compliance with GAAP and we follow the guidelines when dealing with inventories, depreciation, liabilities, assets, impairments, and depletion.
In the clip "Other People's Money" Danny DeVito tries to show the owner of the New England Wire and Cable division their company's investment in the market or "market value". He does this by adding their assets: equipment, land, other operations, and working capital and divides them by their number of shares outstanding. He proved to the company that while their stock price should be at $25.00 a share, it is only at 10.00 a share or in Danny DeVito's words, "a sale." This relates to our class discussion because it brings into account investments, revenue recognition, and earnings per share. We will also be learning about statements of cash flows, which are in relation to the financial statements.
Ethics and liquidation also plays a big role in the film. A highly liquid asset is something that can be converted into cash at a rapid pace and is like cash because the price remains relatively constant when being sold in the market. Danny DeVito is also called "Larry the Liquidator" in the movie because he is known for liquidating companies, or selling off their assets. This will eventually get the stockholders money however it puts the business in a position to fail. Ethics comes into play here because you have know what is right from wrong and take into consideration all whom will be affected by decisions that you make.
Sometimes ethics is not enough because you cannot trust everyone to do the right thing all the time. In 2002, a bill was passed and was called Sarbanes Oxley or "SOX". This bill was passed because corporations "cooked the books" or in other words they would lie on their financial statements. This ended up costing investors billions of dollars because the corporation would go bankrupt, some examples would be that of Tyco, Enron, and WorldCom. "SOX" has made strict rules that all accountants must follow, especially CPA's who audit, and now require CFO's to sign off on statements proving that they are legitimate. Sarbanes Oxley and ethics plays a big role in accounting which is why I thought it was relevant to our accounting class as well as all accounting majors.
I have previously seen "Other People's Money" in the past and have enjoyed the film. Overall, the assigned clips we watched were very interesting and informative. It was a nice change of pace to see how accounting really applies to businesses not just by being told, but instead by watching this movie. "Other People's Money" ties in well with different levels of accounting ranging from intermediate to advanced classes because it brings into account liabilities, market value, GAAP, and other accounting terms such as working capital and liquidation. The movie also displays a real life situation very well and puts it into a plot that is enjoyable to watch so you are entertained and learning at the same time.
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