Floyd Norris says Enron's accounting was "like a carnival fun house":

The crucial transaction, [Enron's auditor, James Berardino] said, involved just $5.7 million. ...

A few minutes later, Mr. Berardino airily dismissed Andersen's failure to notice that Enron had inflated shareholders' equity by $172 million through bad accounting. Relative to the size of Enron, "it was a very small item," he explained. "Accordingly, the transaction fell below the scope of our audit."

How can $172 million be very small, while less than 4 percent of that amount is crucial? That's the fun-house effect.

What's really going on here is that the $6 million was the price that Enron was paying to sweep $711 million in reported debts (and $45 million in operating losses) under the rug --- or more precisely, off its own books, and on the books of a separate entity which it described as an "independant partnership". The $6 million was the cost of Enron's guarantee to its "partners" that they wouldn't actually face the risks of ownership.

Norris is too kind to note that some Enron executives directly pocketed hefty fees for managing these partnerships --- Business week claims that CFO Andrew Fastow got $30 million. And many more sold shares at inflated prices to investors whose appetite was whetted by the faked-up numbers.

There's a more detailed writeup of similar shenanigans in the Washington Post, explaining how one piece of inconvenient debt, originally incurred by a partnership called JEDI, was transferred to another one, cleverly named Chewco after Han Solo's buddy from the original Star Wars; JEDI was apparently a genuine partnership, but Chewco was essentially wholly owned by Enron, and the segregation of its debts from Enron's was an accounting gimmick which achieved nothing other than to cook Enron's books. The wookie should sue.

And that's before we even get to the deals that sank Enron, which the Post's Debra Rosenberg summarizes by noting that

When a company adds to its assets and nothing else changes, its net worth rises. Hence, Enron marked up its net worth by $1.2 billion.

In Enron's heyday, this sort of thing was known as rocket science, or cutting-edge entrepreneurialism. With luck, we may be getting back to a time when it goes by the more prosaic name, fraud.