Nearly one out of 10 U.S. public companies–1,420 in all–filed a restatement in 2006, up 13% from the record number of restatements set in 2005, according to a study by Glass Lewis & Co. In fact, over the past four years, the study recorded that 2,931 companies, or about 23% of the nation's public companies, filed at least one restatement and 683 companies restated two or more times.

And those restatements hurt too: The median stock return of companies that filed restatements was negative 6%, or 20% less than the Russell 3000 stock index returned in 2006, the study showed. Restatements by companies listed on the over-the-counter markets soared by 76%, Glass Lewis noted, while restatements by companies listed on the national stock exchanges declined by 20%.

However, not all the news is bad. Two factors seem to protect companies from the pain of restatement: first, an audit by one of the Big Four audit firms, and second, (and this may be hard for companies to swallow) the Sarbanes-Oxley Act's Section 404. The Glass Lewis study showed a 32% decline in restatements by companies that were audited by one of the Big Four firms. Ernst & Young had the lowest restatement rate among auditors, at 6.9%. Large companies that had passed their 404 audits also experienced a decline in restatements–down 14% in 2006.