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Earnings restatements rose 13 percent last year but declined at larger companies that have to comply with a Sarbanes-Oxley requirement to inspect their internal controls, a report released Tuesday said.

The report from research firm Glass Lewis & Co. said the findings show the rule - known as Section 404 - is working well in rooting out financial error and fraud and shouldn’t be softened as many corporate executives want.

U.S. public companies filed a record 1,420 restatements in 2006, the study said, up from 1,255 a year earlier, with nearly one in 10 companies restating. But among larger companies, restatements fell 14 percent, while the smallest companies - those with a market capitalization of less than $75 million - saw restatements soar 40 percent.

The difference, the report contends, is that bigger companies have had to comply with the new rule since 2005 and have already fixed any problems with their internal controls over financial reporting. As a result, they’ve made progress in cleaning up their books and completed any restatements that were needed. By contrast, small companies don’t yet have to comply with Section 404, and so “these companies still have lots of work left to do” in finding financial-reporting problems, the report said.

SmartPros: Report Finds Restatement Trends Show Sarbanes-Oxley Works