Gale Encyclopedia Of American Law 3Rd Edition Volume 1 P8 ppsx

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

common intent unites with the principal offender
in the commission of a crime. One who is in some
way concerned or associated in commission of
crime; partaker of guilt; one who aids or assists, or
is an accessory. One who is guilty of complicity in
crime charged, either by being present and aiding
or abetting in it, or having advised and encour-
aged it, though absent from place when it was
committed, though mere presence, acquiescence, or
silence, in the absence of a duty to act, is not
enough, no matter how reprehensible it may be, to
constitute one an accomplice. One is liable as an
accomplice to the crime of another if he or she gave
assistance or encouragement or failed to perform a
legal duty to prevent it with the intent thereby to
promote or facilitate commission of the crime.
An
ACCOMPLICE may assist or encourage the
principal offender with the intent to have the
crime committed, the same as the chief actor.
An accomplice may or may not be present
when the crime is actually committed. How-
ever, without sharing the criminal intent, one
who is merely present when a crime occurs and
stands by silently is not an accomplice, no
matter how reprehensible his or her inaction.
Some crimes are so defined that certain
persons cannot be charged as accomplices even
when their condu ct significantly aids the chief
offender. For example, a businessperson who

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

from a
ROBBERY that resulted in the murder of
its victims, an elderly married couple. Although
Enmund remained in the car during the
robbery and consequent killings and the trial
record did not establish that he intended to
facilitate or participate in a murder, the trial
court sentenced him to death, along with the
persons who actually killed the victims, upon
his conviction for robbery in the first degree. In
overturning the decision, the Supreme Court
reasoned that to condemn such a
DEFENDANT to
death violated the Eighth and Fourteenth
Amendments to the
CONSTITUTION, which pro-
hibited
CRUEL AND UNUSUAL PUNISHMENT in state
prosecutions. The death penalty was an exces-
sive punishment in light of the “criminal
culpability” of this accomplice.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
58 ACCOMPANY
CROSS REFERENCES
Capital Punishment; Criminal Law; Eighth Amendment;
Fourteenth Amendment; Sentencing.
ACCOMPLICE WITNESS
A witness to a crime who, either as principal,
accomplice, or accessory, was connected with the
crime by unlawful act or omission on his or her part,

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

be used to settle it. The controversy may be
founded on contract or tort. It can arise from a
collision of motor vehicles, a failure to deliver
oranges ordered and paid for, or a refusal to
finish constructing an office building, etc.
In former times, courts recognized an accord
and satisfaction only when the amount of the
controversy was not in dispute. Otherwise, the
RESOLUTION had to be by COMPROMISE AND SETTLE-
MENT
. The technical distinction is no longer made,
however, and a compromise of amount can
properly be part of an accord and satisfaction. The
amount, whether disputed or not, is usually
monetary, as when a pedestrian claims $10,000 in
DAMAGES from the driver who struck him. The
amount can be a variety of other things, however,
as when a homeowner claims that she ordered a
swimming pool thirty-six feet long rather than
thirty-five feet or when an employee insists that he
is entitled to eleven rather than ten days of
vacation during the rest of the calendar year.
An accord and satisfaction can be made only
by persons who have the legal capacity to enter
into a contract. A
SETTLEMENT is not binding on
an insane person, for example; and an infant
may have the right to disaffirm the contract.
Therefore, a person, such as a guardian, acting
on behalf of a person incapable of contracting

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

that he agreed to let his friend negotiate an accord
and satisfaction, and the court would deny relief.
An accord and satisfaction is a contract,
and all the essential elements of a contract
must be present. The agreement must in-
clude a definite offer of settlement and an
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
ACCORD AND SATISFACTION 59
unconditional acceptance of the offer accord-
ing to its terms. It must be final and definite,
closing the matter it covers and leaving nothing
unsettled or open to question. The agreement
may call for full payment or some compromise
anditneednotbebasedonanearlier
agreement of the parties. It does not necessarily
have to be in writing unless it comes
WITHIN TH E
STATUTE
of frauds.
Unless there are matters intentionally left
outside the accord and satisfaction, it settles
the entire controversy between the parties. It
extinguishes all the obligations arising out of the
underlying contract or tort. Where only one of
two or more parties on one side settles, this
ordinarily operates to discharge all of them.
The reason for this is the rule that there should
be only one satisfaction for a single injury or
wrong. This rule does not apply where the
satisfaction is neither given nor accepted with

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

of accord in which the promise alone, rather
than full performance, is satisfaction, and is
accepted as a binding resolution of the dispute.
FURTHER READINGS
Dolson, Andrew J. 1995. “Accord and Satisfaction under
Article 3A of the UCC: A Trap for the Unwary.”
Virginia Bar Association Journal 21 (winter).
Floyd, Michael D. 1994. “How Much Satisfaction Should You
Expect from an Accord? The U.C.C. Section 3-311
Approach.” Loyola Univ. of Chicago Law Journal 26 (fall).
Veltri, Stephen C., Marina I. Adams, and Paul S. Turner.
2004. “Payments.” Business Lawyer 59.
ACCOUCHEMENT
The act of giving birth to a child.
The fact of accouchement may be proved
by the direct
TESTIMONY of some one who was
present, such as a midwife or a physician, at the
time of birth. It may be significant in proving
parentage; for example, where there is some
question about who is entitled to inherit
property from an elderly person who died
leaving only distant relatives.
ACCOUNT
A written list of transactions, noting money owed
and money paid; a detailed statement of mutual
demands arising out of a contract or a fiduciary
relationship.
Accouchement: U.S. Births and Birthrates
SOURCE: National Center for Health Statistics, National Vital Statistics Report,

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

1960
4.26
3.73
1970
3.63
1950
ILLUSTRATION BY GGS
CREATIVE RESOURCES.
REPRODUCED BY
PERMISSION OF GALE,
A PART OF CENGAGE
LEARNING.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3
RD E DITION
60 ACCOUCHEMENT
An account can simply list payments, losses,
sales, debits, credits, and other monetary trans-
actions, or it may go further and show a balance
or the results of comparing opposite transa c-
tions, like purchases and sales. Businesspersons
keep accounts; attorneys may keep escrow
accounts; and executors must keep accounts that
record transactions in administering an estate.
ACCOUNT, ACTION ON
A civil lawsuit maintained under the common law
to recover money owed on an account.
The action on account was one of the ancient
FORMS OF ACTION. Dating back to the thirteenth
century, it offered a remedy for the breach of
obligations owed by fiduciaries. Originally, the

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

A debt owed by a business that arises in the
normal course of dealings and is not supported by
a negotiable instrument.
The charge accounts of a department store
are accounts receivable, but income from
investments usually is not. Accounts receivable
generally arise from sales or service transactions.
They are not necessarily due or past due.
Insurance may be purchased to protect against
the risk of being unable to collect on accounts
receivable if records are damaged or lost.
ACCOUNT RENDERED
A statement of transactions made out by a creditor
and presented to the debtor.
After the debtor has examined the account
and accepted it, an account rendered becomes
an
ACCOUNT STATED.
ACCOUNT STATED
An amount that accurately states money due to a
creditor; a debt arising out of transactions between
a debtor and creditor that has been reduced to
a balance due for the items of account.
A creditor agrees to accept and a debtor
agrees that a specific sum is a true and exact
statement of the amount he or she owes. The
debtor may agree in words to pay the amount,
or it may be understood that the debtor has
accepted the account stated by failing to object
within a certain period of time.

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

ACCOUNTANT 61
to regulate the profession by means of a licensing
system for accountants. Some states do not
permit anyone to practice accounting except
certified public accountants, but other states use
the title to recognize the more distinguished
skills of a CPA while permitting others to
practice as public accountants. All states limit
the use of the title and the initials to those who
are licensed as certified public accountants.
All accountants are held to high standards of
skill in issuing professional opinions. They can
be sued for
MALPRACTICE if performance of their
duties falls below standards for the profession.
ACCOUNTING
Accounting is a system of recording or settling
accounts in financial transactions and includes
methods of determining income and expenses for
tax and other financial purposes. Accounting is
also one of the remedies available for enforcing a
right or redressing a wrong asserted in a lawsuit.
Various accounting methods may be
employed. The accrual method shows expenses
incurred and income earned for a given period
of time whether or not such expenses and
income have been actually paid or received by
that time. The cash method records income and
expenses only when monies have actually been
received or paid out. The completed contract

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.

The regular officers of the
CHANCERY, who
represented the king in hearing disputes that
could not be taken to courts of law, were able to
serve as auditors and work through complex
accounts when necessary. The chancery had the
power to discover hidden assets in the hands of
the
DEFENDANT. Later, courts of law began to
recognize and enforce regular contract claims,
as actions in
ASSUMPSIT, and the courts of equity
were justified i n compelling an accounting only
when the courts at law could not give relief. A
PLAINTIFF could ask for an accounting in equity
when the complexity of the accounts in the case
made it too difficult for a jury to resolve or
when a
TRUSTEE or other FIDUCIARY was charged
with violating a position of trust.
In the early twenty-first century, courts in the
United States generally have jurisdiction both at
law and in equity. They have the power to order
an accounting when necessary to determine the
relative rights of the parties. An accounting may
be appropriate whenever the defendant has
violated an obligation to protect the plaintiff’s
interests. For example, an accounting may be
ordered to settle disputes when a partnership is
breaking up, when an

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

The accounting profession, which is largely self-
regulated, has suffered through a series of
fiascoes since the late 1990s, resulting in a call
for major changes in accounting standards. The
Financial Accounting Standards Board (FASB)
has served since 1973 as one of the organiza-
tions responsible for establishing standards of
financial accounting and reporting. Although
the FASB is a private organization, its standards
are recog nized as authoritative by the
SECURITIES
AND EXCHANGE COMMISSION
(SEC) and the Ameri-
can Institute of Certified Public Accountants. In
the late 1990s and early 2000s, debacles
involving major accounting firms required the
FASB and the SEC, as well as other regulatory
organizations, to consider new rules designed to
improve financial reporting. Between 1996 and
2002, investors lost an estimated $200 billion in
earnings restatements and stock meltdowns
following failures in auditing processes. A
number of high-profile auditing failures de-
creased confidence in the accounting profession.
Among these failures were incidents involving
such companies as Bausch and Lomb, Rite Aid,
Cendant, Sunbeam, Waste Management, Super-
ior Bank, and Dollar General.
One of the most highly publicized account-
ing failures early in the new millennium

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,

Enron and Arthur Andersen had improperly
categorized hundreds of millions of dollars as
increases in shareholder equity, thereby mis-
representing the true value of the corporation.
Arthur Andersen also did not follow
GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
(GAAP) when it
considered Enron’s dealings with related part-
nerships. These dealings, in part, allowed Enron
to conceal some of its losses.
Arthur Andersen was also
ACCUSED of
destroying thousands of Enron documents that
included not only physical documents but also
computer files and e-mail files. After investiga-
tion by the U.S.
JUSTICE DEPARTMENT, the firm was
indicted on
OBSTRUCTION OF JUSTICE charges in
March 2002. The government also charged the
company with violating federal law, which
criminalized the knowing and corrupt persua-
sion of others to withhold or alter documents.
After a six-week trial, Arthur Andersen
was found guilty in June 2002. The company
was placed on
PROBATION for five years and wa s
required to pay a $500,000 fine. Some analysts als o
questioned whether the company could survive

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

ACCOUNTING 63
reports to investors. In 2007 the Fifth Circuit
Court of Appeals reversed the order ce rtifying
a class action (uniting plaintiff investors),
finding that the defendants were under no
fiduciary or other duty to disclose the nature of
Enron transactions to investors. Therefore,
there could not be a class-wide presumption of
reliance on defendants by investors (an essential
element to prove fraud or misrepresentation)
(Regents of the Univ. of Cal. v. Credit Suisse First
Boston, 482 F.3d 372 [5th Cir. 2007]). In January
2008, the U.S. Supreme Court denied review of
the case (No. 06-1341, 2008 WL 169504, U.S.
LEXIS 1120, 76 U.S.L.W. 3392).
The accounting issues in the Enron case
extended beyond Enron and Arthur Andersen. In
the wake of these and other major accounting/
auditing scandals, Congress passed the anti-fraud
SARBANES-OXLEY ACT OF 2002, P.L. 107-204, 116
Stat. 745 (codified in various chapters and
sections of the
U.S. CODE). Among other things,
the act created a Public Company Accounting
Oversight Board (PCAOB), to be paid for by fees
collected on publicly traded companies, according
to their size. The Board replaced the accounting
industry’s own internal regulators and had
independent
SUBPOENA power to facilitate its own

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

SEC violations that cost investors at least $50
billion in false or nonexistent investments. In
March 2009 Madoff pleaded guilty to creating
false investment accounts and privately pocketing
funds received from investors, periodically paying
returns to some of them with money received
from other prospective investors under a giant
Ponzi scheme. In June 2009 he was sentenced to
150 years in prison. In connection with this case,
the accounting firm of Friehling & Horowitz and
partner David G. Friehling, C.P.A. were also
charged with fraud and various SEC violations
for falsely representing that they had conducted
legitimate company audits of Madoff’s invest-
ment firm over the years, when in fact they had
not (Securities and Exchange Commission v.
David G. Friehling, C.P.A and Friehling &
Horowitz, CPAs, P.C. [S.D.N.Y. Civ. 09 CV
2467]).
FURTHER READINGS
Atvedlund, Erin. 2009. Too Good to Be True: The Rise
and Fall of Bernie Madoff. New York: Portfolio
Hardcover.
Meyer, Charles H. 2002. Accounting and Finance for Lawyers
in a Nutshell. 2d ed. St. Paul, Minn.: West Group.
Rachlin, Robert, and Allen Sweeny. 1996. Accounting and
Financial Fundamentals for Nonfinancial Executives.
New York: AMACON.
SEC. 2009. “SEC Charges Madoff Auditors with Fraud.”
Press Release, March 18. Litigation Release No. 20959.

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.

Accretion of land is of two types: (1) by
alluvion, the washing up of sand or soil so as to
form firm ground; and (2) by dereliction, as
when the sea shrinks below the usual watermark.
The terms alluvion and accretion are often used
interchangeably, but alluvion refers to the deposit
itself while accretion denotes the act. Land
uncovered by a gradual subsidence of water is
not an accretion; it is a reliction.
ACCRUAL BASIS
A method of accounting that reflects expenses
incurred and income earned for income tax
purposes for any one year.
Taxpayers who use the accrual method must
include in their
TAXABLE INCOME any money that
they have the right to receive as payment
for services, once it has been earned. Any
expenses that they may take as deductions
when computing taxable income must be due at
the time the deduction is taken. For example,
suppose a surgeon performed a tonsillectomy
in October 2003, and on December 31, 2003,
he received a bill for carp eting installed in
the waiting room of his office. He was paid
the surgical fee on January 3, 2004, the same day
he paid for the carpeting. The surgical fee will
be included in his taxable income for 2003, the
year in which he earned it, regardless of the fact
that he was not paid until the following year.

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

accessory claim or demand arises out of, and is
joined to, its principal.
The term is also used of independent or original
demands, meaning to arise, to happen, to come into
force or existence; to vest, as in the sentence, “The
right of action did not accrue within six years.” To
become a present right or demand; to come to pass.
Interest on money that a depositor has in a
bank savings account accrues, so that after a
certain time the amount will be increased by the
amount of interest it has earned.
A
CAUSE OF ACTION, the facts that give a person a
right to judicial relief, usually accrues on the date
that the injury to the
PLAINTIFF is sustained. When
the injury is not readily discoverable, the cause of
action accrues when the plaintiff in fact discovers
the injury. This occurs frequently in cases of fraud
or
MALPRACTICE. A woman, for example, has an
appendectomy. Three years after the surgery, she
still experiences dull pain on her right side. She is
examined by another physician who discovers a
piece of surgical sponge near the area of the
operation. Although the injury had occurred at
the time of surgery three years earlier, in this case
the cause of action for
MEDICAL MALPRACTICE
accrues on the date that the sponge is discovered

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.

Many states have laws governing the time
over which accumulations may be made.
ACCUMULATIVE JUDGMENT
A second or additional judgment against a person
who has already been convic ted and sentenced
for another crime; the execution of the seco nd
judgment is postponed until the person’s first
sentence has been completed.
ACCUMULATIVE SENTENCE
A sentence—a court’s formal pronouncement of
the legal consequences of a person’s co nviction
of a crime—additional to others, imposed on a
defendant who has been convicted upon an
indictment containing several counts, each charg-
ing a distinct offense, or who is under conviction at
the same time for several distinct offenses; each
sentence is to run consecutively, beginning at the
expiration of the previous sentence.
A person must finish one sentence before
being allowed to start the next one. Another
name for
ACCUMULATIVE SENTENCE is cumulative
or consecutive sentence.
The opposite of an accumulative sentence is
a
CONCURRENT sentence—two or more prison
sentences that are to be served simultaneously,
so that the prisoner is entitled to be released at
the end of the longest sentence.
ACCUSATION

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

similar to that in the Sixth Amen dment. In
many state rules of
CRIMINAL PROCEDURE,the
accusatory instrument serves to protect the state
CONSTITUTIONAL rights of the accused. In
Louisiana, for example, the purpose of a bill
of information is to inform a
DEFENDANT of the
nature and cause of the accusation against him
or her as required by the Louisiana State
Constitution (State v. Stevenson, 2003 WL
183998 [La. App. 2003]).
In order to
QUASH a bill of i nformation or
other accusatory instrument, the accused must
present
DIRECT EVIDENCE not e stablished by the
record, s howing the bill w as insufficient. The
accused g enerally has the
BURDEN OF PROOF to
demonstrate that the accusatory instrument was
insufficient. The rules of evidence in a particular
jurisdiction apply t o the evidentiary d etermination
of the sufficiency of the accusatory instrument.
CROSS REFERENCE
Criminal Law.
ACCUSATORY BODY
Body such as a grand jury whose duty it is to hear
evidence to determine whether a person should
be accused of (charged with) a crime; to be

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

STATUTE OF LIMITATIONS is tolled or suspended.
The creditor then has another six years from the
date of partial payment to sue the debtor for
the balance of the loan. The debtor ’s partial
payment indicates
ACCEPTANCE of responsibility
to pay the loan. If the debtor had not paid
anything, he or she would have escaped
LIABILITY
six years after the date the loan was due.
An acknowledgment of
PATERNITY means
recognition of parental duties—such as finan-
cial support of an illegitimate child—by written
agreement, verbal declaration, or conduct of the
father toward the mother and child that clearly
demonstrates recognition of paternity.
The requirement for acknowledgmen ts on
certain documents—such as deeds transferring
the ownership of real property, wills giving the
ownership of property to a de cedent’s heirs after
death, or
DOCUMENTARY EVIDENCE that is to be
admitted in a legal proceeding—is established
by state law. If such documents do not contain
acknowledgments, they are ineffective and
cannot be used in any
LEGAL PROCEEDINGS.
Any or all of the parties to a document may
be required to acknowledge it. Only those

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
.

A certificate of acknowledgment, sometimes
referred to as the acknowledgment, is evidence
that the acknowledgment has been done
properly. Although its contents may vary from
state to state, the certificate must recite: (1) that
acknowledgment before the proper officer was
made by the person who completed the
document; (2) the place where the acknowledg-
ment took place; and (3) the name and
authority of the officer. The certificate may be
on the document itself or may be attached to it
as a separate instrument.
ACQUIESCENCE
Conduct recognizing the existence of a transaction
and intended to permit the transaction to be
carried into effect; a tacit agreement; consent
inferred from silence.
For example, a new beer company is
concerned that the proposed label for its beer
might infringe on the trademark of its competi-
tor. It submits the label to its competitor’s
general counsel, who does not object to its use.
The new company files an application in the
PATENT AND TRADEMARK OFFICE to register the label
as its trademark and starts to use the label on
the market. The competitor does not file any
objection in the
PATENT Office. Several years
later, the competitor sues the new company for
infringing on its trademark and demands an

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