loan, promising to repay the amount over a
number of years. If the company does not
consider the person a good credit risk (one who
will be able to repay the loan), it will request
that someone else sign the note to ensure that
the company will be repaid. Suc h a person may
be an accommodation endorser, because he or
she endorses the note after it has been
completed, or an accommodation maker, be-
cause he or she must sign the note with the
accommodation party.
An accommodation party is liable to the
person or business that extended credit to the
accommodation party, but not to the accom-
modated party. The accommodation party is
liable for the amount specified on the
ACCOMMODATION PAPER. If an accommodat ion
party repays the debt, he or she can seek
reimbursement from the accommodated party.
ACCOMPANY
To go along with; to go with or to attend as a
companion or associate.
A motor vehicle statute may require begin-
ning drivers or drivers under a certain age to be
accompanied by a licensed adult driver when-
ever operating an automobile. To comply with
such a law, the licensed adult must supervise the
beginner and be seated in such a way as to be
able to render advice and assistance.
ACCOMPLICE
One who knowingly, voluntarily, and with

yields to the
EXTORTION demands of a racketeer
or a parent who pays ransom to a kidnapper
may be unwise, but neither is a principal in the
commission of the crimes. Even a victim may
unwittingly create a perfect opportunity for the
commission of a crime but cannot be consid-
ered an accomplice because he or she lacks a
criminal intent.
An accomplice may supply money, guns, or
supplies. In one case, an accomplice provided
his own blood to be poured on selective service
files. The driver of the getaway car, a lookout, or
a person who entices the victim or distracts
possible
WITNESSES is an accomplice.
An accomplice can be convicted even if the
person that he or she aids or encourages is not.
He or she is usually subject to the same degree
of punishment as the principal offender. In the
1982 decision of Enmund v. Florida, 458 U.S.
782, 102 S. Ct. 3368, 73 L. Ed. 2d 1140, the
SUPREME COURT OF THE UNITED STATES ruled that
the death
PENALTY could not be constitutionally
imposed upon an accomplice to a felony-
murder, a crime leading to
MURDER,ifheor
she had no intention to, or did not, kill the
victim. Earl Enmund drove the getaway car

transpiring either before, at time of, or after
commission of the offense, and whether or not he
or she was present and participated in the crime.
Generally, there can be no conviction solely
on the basis of what is said by an accomplice
witness; there must be evidence from an
unrelated source to corroborate the witness’s
TESTIMONY.
ACCORD
An agreement that settles a dispute, generally
requiring an obligee to accept a compromise or
satisfaction from the obligor with something less
than what was originally demanded. Also often
used synonymously with treaty.
ACCORD AND SATISFACTION
A method of discharging a claim whereby the
parties agree to give and accept something in
settlement of the claim and perform the agree-
ment, the accord being the agreement and the
satisfaction its execution or performance, and it is
a new contract substituted for an old contract
which is thereby discharged, or for an obligation or
cause of action which is settled, and must have all
of the elements of a valid contract.
To constitute an accord and satisfaction,
there must have been a genuine dispute that is
settled by a meeting of the minds with an intent
to compromise. Where there is an actual
controversy, an
ACCORD and satisfaction may

for himself or herself may make an accord and
satisfaction for the person committed to his or
her charge, but the law may require that the
guardian’s actions be supervised by a court. An
executor or administrator may bind an estate; a
TRUSTEE can accept an accord and satisfaction for
a trust; and an officer can negotiate a settlement
for a corporation.
A third person may give something in
satisfaction of a party’s debt. In such a case, an
accord and satisfaction is effected if the creditor
accepts the offer and the debtor authorizes,
participates in, or later agrees to, the transaction.
For example, a widower has an automobile
accident but is mentally unable to cope with a
lawsuit because his wife has just died. He
gratefully accepts the offer of a close family friend
to talk to the other driver, who has been
threatening a lawsuit. The friend convinces the
other driver that both drivers are at fault to some
extent. The friend offers to pay the other driver
$500 in damages in exchange for a written
statement that she will not make any claim
against the widower for damages resulting from
the accident. The family friend and the other
driver each sign a copy of the statement for the
other, and when the payment is made, the accord
and satisfaction is complete. If the other driver
then sues the widower for more money on
account of the accident, the widower could show

the intention that it settle the entire matter.
An accord without satisfaction generally
means nothing. With a full satisfaction, the
accord can be used to defeat any further claims
by either party unless it was reached by
FRAUD,
DURESS,orMUTUAL MISTAKE.
An accord and satisfaction can be distin-
guished from other forms of resolving legal
disputes. A payment or performance means that
the original obligations were met. A release is a
formal relinquishment of the right to enforce
the original obligations and not necessarily a
compromise, as in accord and satisfaction. An
ARBITRATION is a settlement of the dispute by
some outside person whose determination of an
award is voluntarily accepted by the parties. A
COMPOSITION WITH CREDITORS is very much like an
accord but has elements not required for an
accord and satisfaction. It is used only for
disputes between a debtor and a certain number
of his or her creditors, while an accord and
satisfaction can be used to settle any kind of
controversy—whether arising from contract or
tort—and ordinarily involves only two parties.
Although distinctions have occasionally been
drawn between an accord and satisfaction and a
compromise and settlement, the two terms are
often used interchangeably. A
NOVATION is a kind

vol. 57, no. 12, March 18, 2009.
Births (in millions)
Birthrate ( per 1,000)
0
1
2
3
4
5
0
5
10
15
20
25
30
35
2000
4.06
2007
4.30
1990
4.16
1980
3.61
Births (in millions)
Birthrate (per 1,000)
Year
1940
2.56

action al lowed lords to recover money wrong-
fully withheld by the bailiffs of their manors,
whom they appointed to collect fines and rents.
Later, statutes extended the right so that law-
suits could be brought against persons who
were required to act primarily for someone
else’s benefit, such as guardians and partners.
Eventually, the action withered away be cause its
procedure was too cumbersome, and fiduciaries
came under the jurisdiction of the special court
of the king, called the
CHANCERY.
An action on account is different from a
modern-day
ACCOUNTING, which is a settling
of accounts or a determination of transactions
affecting two parties, often when one party asks a
court to order the other party to account.
ACCOUNT PAYABLE
A debt owed by a business that arises in the
normal course of its dealings, that has not been
replaced by a note from another debtor, and that
is not necessarily due or past due.
Bills for materials received or obligations on
an
OPEN ACCOUNT may be accounts payable. This
kind of
LIABILITY usually arises from a purchase
of merchandise, materials, or supplies.
ACCOUNT RECEIVABLE

ACCOUNTANT
A person who has the requisite skill and experience
in establishing and maintaining accurate financial
records for an individual or a business. The duties
of an accountant may include designing and
controlling systems of records, auditing books, and
preparing financial statements. An accountant
may give tax advice and prepare tax returns.
A public accountant renders
ACCOUNTING or
auditing services for a number of employees,
each of whom pays the accountant a fee for
services rendered. He or she does more than just
BOOKKEEPING but does not generally have all the
qualifications of a certified public accountant.
A certified public accountant is one who has
earned a license in his or her state that attests to
a high degree of skill, training, and experience.
In addition to passing an accounting examina-
tion, a candidate must have the proper business
experience, education, and moral character in
order to qualify for the license. The letters
CPA
are commonly used and generally recognized to
be the abbreviation for the title Certified Public
Accountant.
The practice of accounting is a highly skilled
and technical profession that affects public
WELFARE. It is entirely appropriate for the state
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION

method reports gains or losses on certain long-
term contracts.
GROSS INCOME and expenses are
recognized under this method in the tax year in
which the contract is completed. The install-
ment method of accounting is a method used by
regulated utilities to calculate
DEPRECIATION for
INCOME TAX purposes.
The cost method of accounting records the
value of assets at their actual cost, and the fair
value method uses the present
MARKET VALUE for
the recorded value of assets. Price leve l account-
ing is a modern method of valuing assets in a
FINANCIAL STATEMENT by showing their current
value in comparison to the gross national
product.
Where a court orders an accounting, the
party against whom judgment is entered must
file a complete statement with the court that
accounts for his or her administration of the
affairs at issue in the case. An accounting is
proper for showing how an executor has
managed the
ESTATE of a dec eased person or
for disclosing how a partner has been handling
PARTNERSHIP business.
An accounting was one of the ancient
English remedies available in courts of equity.

HEIR believes that the
executor of an estate has sold off assets for less
than their
FAIR MARKET VALUE,orwhenshare-
holders
CLAIM that directors of a corporation have
appropriated for themselves a business opportu-
nity that should have profited the corporation.
An accounting may also be an appropriate
remedy against someone who has committed a
wrong against the plaintiff and should not be
allowed to profit from it. For example, a bank
teller who embezzles money and makes a huge
profit by investing it in mutual funds may be
ordered to ac count for all the money taken and
the earnings made from it. A businessperson who
sells a product as that of a more popular
manufacturer might have to account for the
entire profit made from it. A defendant who
plagiarizes another author’s book can be ordered
to give an accounting and pay over all the profits
to the owner of the copyrighted material. An
accounting forces the wrongdoer to trace all
transactions that flowed from the legal injury,
because the plaintiff is in no position to identify
the profits.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
62 ACCOUNTING
Arthur Andersen and Other
Accounting Failures

involved Houston-based Enron Corporation
and its
ACCOUNTANT, Arthur Andersen, L.L.P.
Enron suffered a collapse in the third quarter of
2001 that resulted in the largest
BANKRUPTCY in
U.S. history to date and numerous lawsuits
alleging violations of federal securities laws.
Thousands of Enron employees lost 401(k)
retirement plans that held company stock.
Enron reported annual revenues of about $101
billion between 1985 and 2000. On December
18, 2000, Enron’s stock sold for $84.87 per
share. Stock prices fell throughout 2001,
however, and on October 16, 2001, the
company reported losses of $638 million in
the third quarter alone. During the next six
weeks, company stock continued to fall, and by
December 2, 2001, Enron stock dropped to
below $1 per share after the largest single day
trading volume for any stock listed on either the
New York Stock Exchange or the NASDAQ.
Initial allegations focused on the role of
Arthur Andersen. The company was one of the
so-called Big Five accounting firms in the United
States, and it had served as Enron’s auditor for 16
years. Arthur Andersen also served as a consul-
tant to Enron, thus raising serious questions
regarding conflicts of interests between the two
companies. According to court documents,

after this series of incidents. However, the U.S.
Supreme Court, in an unanimous opinion, later
reversed the criminal conviction on the ba sis of
faulty and improper j ury instructions (Arthur
Andersen v. United States, 544 U.S. 696 [2005]).
The high court found nothing inherently corrupt
about Arthur Andersen (the company) having
ordered employees to destroy documents. The
Court held that a conviction could be found only
if prosecutors proved that company officials were
aware that their conduct (in persuading the
destruction of documents) was corrupt.
Civil
FRAUD charges (relating to accounting
and auditing) were also filed in a related
CLASS
ACTION
lawsuit by E nron stockholders (includ-
ing
PENSION administrators for the Unive rsity of
California, the named plaintiffs) against several
Wall Street investment banks, including Credit
Suisse, Merrill Lynch, and JPMorgan Chase.
The lawsuit charged that the banks essentially
colluded with and assisted Enron officials with
FRAUDULENT partnerships and transactions, ma-
nipulating the true status of Enron’s financial
health. This activity resulted in company
officials presenting allegedly deceptive business
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION

regulation, oversight, and discipline of accoun-
tants and accounting firms. The Sarbanes-Oxley
Act also provided for the SEC to appoint the
chairman and four directors of the PCAOB.
Another important provision in the act created
greater financial disclosure mandates and in-
creased the criminal penalties for securities fraud.
Later, the act itself came under criticism and
CONSTITUTIONAL scrutiny when pro-business,
anti-tax/fee plaintiffs brought suit alleging that
the creation of the PCAOB violated the appoint-
ments clause of the U.S.
CONSTITUTION (Article II,
section 2, cl. 2) as well as the constitutionally
mandated
SEPARATION OF POWERS. A federal district
court upheld the constitutionality of the act and
the PCAOB, and its decision was affirmed by the
U.S. District Court of Appeals for the D.C.
Circuit in 2008 (Free Enterprise Fund v. Public
Company Accounting Oversight Board 537 F.3d
667 [D.C. Cir. 2008]). (In May 2009 the U.S.
Supreme Court granted review of that decision
for its 2009–2010 term, 77 U.S.L.W. 3431.)
Despite these safeguards, one of the largest
accounting and auditing frauds on record unfold-
ed in 2008, when securities investment
BROKER
Bernard (Bernie) Madoff was formally charged in
federal court in Manhattan, New York City, with

CROSS REFERENCES
Accrual Basis; Cash Basis; Income Tax.
ACCREDIT
To give official authorization or status. To recognize
as having sufficient academic standards to qualify
graduates for higher education or for professional
practice. In international law: (1) To acknowledge;
to receive as an envoy and give that person credit and
rank accordingly. (2) To send with credentials as an
envoy. This latter use is now the accepted one.
ACCREDITED LAW SCHOOL
A law school that has been approved by the state and
the Association of American Law Schools (AALS),
the American Bar Association (ABA), or both.
In certain states—for example, California—
it is acceptable for a law school to be accredited
by the state and not by either the AALS or the
ABA. In most states, however, only gra duates
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
64 ACCREDIT
of AALS or ABA accredited law schools are
permitted to take the state BAR EXAMINATION .
CROSS REFERENCE
Legal Education.
ACCRETION
The growth of the value of a particu l ar item given
to a person as a specific bequest under the
provisions of a will between the time the will
was written and the time of death of the testator—
the person who wrote the will.

His expenses for the carpeting can be
deducted from his 2003 income because once
he received the bill, he was bound to pay it. The
fact that he did not pay fo r the carpeting until
the following year does not prevent him from
taking the deduction in 2003.
The accrual method of
ACCOUNTING differs
from the
CASH BASIS method, which treats income
as only that which is actually received, and
expense as only that which is actually paid out.
If the cash method were used in the above
example, the payment of the surgical fee would be
included as income for the 2004 tax year, the year
in which it was received by the surgeon. The
surgeon could deduct the cost of the carpeting
only when he actually paid for it in 2004, although
it had been installed in 2003.
Unearned income, such as interest or rent,
is generally taxed in the year in which it is
received, regardless of the accounting method
that the taxpayer uses.
ACCRUE
To increase; to augment; to come to by way of
increase; to be added as an increase, profit, or
damage. Acquired; fallin g due; mad e or executed;
matured; occurred; received; vested; was created;
was incurred.
To attach itself to, as a subordinate or

by the second doctor. This distinction is impor-
tant for purposes of the running of the
STATUTE OF
LIMITATIONS
, the time set by law within which a
lawsuit must be commenced after a cause of
action accrues. In cases involving injuries that
cannot be readily discovered, it would be unfair to
bar a plaintiff from bringing a lawsuit because he
or she does not start the suit within the required
time from the date of injury.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
ACCRUE 65
ACCUMULATED EARNINGS TAX
A special tax imposed on corporations that
accumulate (rather than distribute via dividends)
their earnings beyond the reasonable needs of the
business. The accumulated earnings tax is imposed
on accumulated taxable income in addition to the
corporate income tax.
ACCUMULATION TRUST
An arrangement whereby property is transferred
by its owner—the settlor—with the intention that
it be administered by someone else—a trustee—
for another person’s benefit, with the direction
that the trustee gath er, rather than distribute, the
income of the trust and any profits made from the
sale of any of the property making up the trust
until the time specified in the document that
created the trust.

A formal criminal charge against a person alleged
to have committed an offense punishable by law,
which is presented before a court or a magistrate
having jurisdiction to inquire into the alleged crime.
The
SIXTH AMENDMENT to the CONSTITUTION
provides in part that a person ACCUSED of a crime
has the right “to be informed of the nature and
cause of the accusation.” Thus in any federal
criminal prosecution, the statute setting forth the
crime in the
ACCUSATION must define the offense in
sufficiently clear terms so that an average person
will be informed of the acts that come within its
scope. The charge must also inform the accused in
clear and unambiguous language of the offense
with which he or she is being charged under the
statute. An accused has the same rights when
charged with violating state
CRIMINAL LAW because
the Due Process Clause of the
FOURTEENTH
AMENDMENT
applies the guarantees of the Sixth
Amendment to the states. The paper in which the
accusation is set forth—such as an
INDICTMENT,
information, or a complaint—is called an accusa-
tory instrument.
Most state constitutions contain language

distinguished from a traverse or petit jury, which
is charged with the duty of determining guilt or
innocence.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
66 ACCUMULATED EARNINGS TAX
ACCUSED
The generic name for the defendant in a criminal
case. A person becomes accused within the meaning
of a guarantee of speedy trial only at the point at
which either formal indictment or information has
been returned aga inst h im or her, or when he or she
becomes subject to actual restraints on liberty
imposed by arrest, whichever occurs first.
ACKNOWLEDGMENT
To acknowledge is to admit, affirm, declare,
testify, avow, confess, or own as genuine. Admis-
sion or affirmation of obligation or responsibility.
Most states have adopted the Uniform Acknowl-
edgment Act.
The partial payment of a debt, for example,
is consid ered an acknowledgment of it for
purposes of tolling the statute of limitations—
the time set by law for bringing a lawsuit—
based on a person’s failure to repay a debtor.
State law usually gives a creditor six years from
the date a debt is due, according to the
creditor’s contract with the debtor, to
SUE for
nonpayment. If, on the last day of the fifth year,
the debtor repays any part of the loan, the

persons specified by law, a
NOTARY PUBLIC,
for exa mple, may take an acknowledgment.
Usually, a person making an acknowledgment
does not have to explain the contents of the
document to the person taking the acknowl-
edgment. A person who ordinarily takes an
acknowledgment might be disqualified from
doing so if that person stands to gain some
benefit from or has a financial interest in the
outcome of the transaction. For example, state
law requires a person making a will, a
TESTATOR,
to make an acknowledgment to a certain number
of
WITNESSES that the document is the genuine
expression of how that person wants his or her
property disposed of up on his or her death.
Suppose the state requires two witnesses. If
the people selected as witnesses have financial
interests in the person’s will, they will be
disqualified for purposes of acknowledgment.
This is done to deter dishonest people from
fabricating a document that is beneficial to
them. Such a will is legally ineffective; once
the testator dies, his or her property will be
transferred according to the laws of
DESCENT AND
DISTRIBUTION
.

GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
ACQUIESCENCE 67