The doubling of restatements by U.S. companies last year could signal that the changes made under the Sarbanes-Oxley Act are having their intended impact.

Research firm Glass Lewis & Co., which works with mo ney managers and other large investors, has issued a report, titled "Getting It Wrong the First Time." The report found that 1,195 companies (8.5 percent of all public companies) made restatements in 2005, compared with 613 the previous year.

In response to the call by some executives and Securities and Exchange Commission policy makers to relax SOX provisions, Glass Lewis writes, "We couldn't disagree more. It's precisely because of the heightened auditing standards ... that investors today are getting a true sense, finally, of just how much work remains to be done before they can feel confident about the accuracy of the financial statements prepared by corporate managers."

The report also argues that smaller public companies are where strong internal controls are most needed. In noting that the smallest accounting firms that audit public companies restated at six times the rate of other companies, Glass Lewis suggested the Public Company Accounting Oversight Board increase its inspections of such firms.

Other key finds in the paper, which is available at, include:

  • Grant Thornton had the highest auditor restatement rate, at 12 percent.
  • KPMG has the highest Big Four auditor restatement rate, at 7.1 percent.
  • "Stealth" restatements (accounting for 14 percent of all restatements) are on the rise, meaning restatements are filed without amended filings, 8-K filings or other announcements.

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