Accounting and movies: a connection
Website design By BotEap.comSeveral movies related to current accounting and finance trends have been released, especially around the 1990s. 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 explain how it relates to our accounting class and accounting in general. Then I will give examples and facts to support my example. Finally, I give my opinion on the following clips that we saw.
Website design By BotEap.com“Other People’s Money” is a film released in 1991, about a man who targets corporations with undervalued assets and works to gain a majority stake in them. Danny DeVito or “Laurence Garfield” notices the downfall of a division called New England Wire and Cable and decides that he wants to get approved and buy the company. This division is especially attractive to Garfield because he has no debt, no pending lawsuits, valuable assets, a fully funded pension and a strong cash position. In the film, the Wire and Cable division has been steadily losing money and its losses have been financed by the profits of the other divisions of the company. Ultimately, Garfield wants to go in and sell the assets for shareholders to make money and eventually get rid of the division.
Website design By BotEap.comThis film is related to accounting because it brings 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 prepare their financial statements. Our 302 accounting class is GAAP compliant and we follow the guidelines when it comes to inventories, depreciation, liabilities, assets, impairments and depletion.
Website design By BotEap.comIn the “Other People’s Money” clip, Danny DeVito tries to show the owner of the New England Wire and Cable division his company’s investment in the market or “market value”. He does this by adding up his assets: equipment, land, other operations, and working capital, and dividing by the number of shares outstanding. He showed the company that while its stock price should be $25.00 per share, it is only $10.00 per share or, in Danny DeVito’s words, “a sale.” This ties in with our class discussion because it takes into account investments, revenue recognition, and earnings per share. We will also be learning about statements of cash flows, which are related to financial statements.
Website design By BotEap.comEthics and liquidation also play an important role in the film. A highly liquid asset is something that can be converted to cash at a rapid rate and is like cash because the price remains relatively constant when it is sold in the market. Danny DeVito is also called “Larry the Liquidator” in the movie because he is known for liquidating companies or selling his assets. This will eventually make the shareholders money, however it puts the company in a position of bankruptcy. Ethics comes into play here because you need to know what is right and what is wrong and take into account everyone who will be affected by the decisions you make.
Website design By BotEap.comSometimes ethics is not enough because everyone cannot be trusted 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, would lie on their financial statements. This ended up costing investors billions of dollars because the corporation would go bankrupt, examples would be Tyco, Enron and WorldCom. “SOX” has put in place strict rules that all accountants must follow, especially CPAs they audit, and now require CFOs to sign statements proving they are legitimate. Sarbanes Oxley and ethics play a big role in accounting, so I thought it was relevant to our accounting class, as well as all accounting majors.
Website design By BotEap.comI previously watched “Other People’s Money” in the past and enjoyed the movie. Overall, the assigned videos that we watched were very interesting and informative. It was a nice change of pace to see how accounting really applies to business, not just hearing about it, but watching this movie. “Other People’s Money” links well to different levels of accounting ranging from intermediate classes 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 very well shows a real life situation and puts it into a plot that is nice to watch so you are entertained and learning at the same time.