he Xerox Corporation, which conceded earlier that as part of a settlement with the Securities and Exchange Commission it would reclassify more than $2 billion of revenue from previous years, said yesterday that it was in fact restating a much larger amount, $6.4 billion.

The result of the restatement will be to lower the company's revenues and profits in 1997, 1998 and 1999, and increase them in 2000 and 2001.

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News of the restatement shook investors, who sent Xerox's shares plunging $1.90 in early trading. But the stock recovered somewhat after shareholders realized that the restatement did not include phantom sales or earnings that might lead to fresh accusations of accounting irregularities or additional S.E.C. action. Xerox shares ended down $1.03, or 12.9 percent, at $6.97.

According to Xerox, the accounting discrepancy stems primarily from a decision by Xerox to account for equipment leases in Latin America as rentals rather than equipment sales, the most conservative way of accounting for such transactions.

With the latest disclosure, the chairwoman and chief executive, Anne M. Mulcahy, said Xerox had resolved its accounting issues with regulators and was determined to "ensure the highest integrity of the company's financial reporting" in the future.

Yesterday's announcement was more ink inscribed in a dark chapter that Xerox began writing in June 2000, when it alerted the S.E.C. that it had uncovered fraudulent accounting in its Mexican operations. The alert touched off an investigation of Xerox's accounting.

The agency concluded that Xerox booked too large a percentage of its revenue and profits from equipment leases in the first few years of the leases and that it had understated finance revenues and overinflated equipment revenues. For example, Jonathan Rosenzweig, an analyst with Salomon Smith Barney, noted that in Brazil, where interest rates often balloon to 25 percent and more, Xerox allocated single-digit finance charges on money that came in on equipment leases in 1997 through 2000, and then listed the rest as revenue.

Xerox fought the S.E.C. for more than a year, insisting that its accounting methods were aggressive, but acceptably so. But in April, Xerox capitulated, agreeing to restate its earnings, change its accounting methods and pay a $10 million fine.

The fine was already the largest that the agency had levied on a corporation, and legal experts say it is unlikely that it would have been any larger if the S.E.C. had realized the magnitude of the resulting restatement.

"Regulatory penalties are not based on the size of the irregularity," said Timothy Kahler, a partner and accounting specialist with the law firm of Jenkens & Gilchrist Parker Chapin.

Even analysts who look askance at Xerox stock felt the early sell-off yesterday was untoward. "In this environment, investors shoot first and ask questions later, but the reality is, nothing significantly new was announced today," said Gibboney Huske of Credit Suisse First Boston, who has a hold rating on Xerox shares.

Jack L. Kelly, an analyst with Goldman, Sachs who is neutral on Xerox shares, noted that Xerox recently renegotiated a $7 billion line of credit with its banks, "and the important thing is, this restatement is not going to affect that agreement."

In fact, some analysts said, the restatement could have a positive short-term effect on Xerox's results. Of the $6.4 billion, all of which had been recorded as equipment sales revenue, some $5.1 billion will immediately reappear as service, rental and financing revenues in 1997 through 2001. The restatement will lift revenue by about $1.9 billion in coming years.

"It's all real money, they just have to put it in different buckets," said James W. Lundy — a former Xerox executive and frequent critic of the company — who is a vice president of Gartner Inc., a technology research firm.

Still, the sheer size of the restatement was enough to provoke astonishment. And former Xerox executives as well as KPMG, Xerox's former auditors, hustled yesterday to distance themselves from it.

"I have no idea what the right number would be, but this is certainly larger than I would have guessed," said G. Richard Thoman, who was ousted as Xerox's chief executive in May 2000, and is one of several former Xerox executives still under S.E.C. investigation.

KPMG, which also remains under investigation, issued a statement reiterating that it had "gotten it right the first time." The firm, which has since been replaced by PricewaterhouseCoopers, took a slap at Xerox, saying the restatement was "opportunistic" — presumably a reference to the fact that the new numbers will make this year's sales and earnings look more robust.

KPMG lawyers also expressed ire at the S.E.C.

"If the S.E.C. thought the accounting methodology was wrong, it should have raised the questions before KPMG issued its audit reports," said Michael Young, a lawyer at Willkie Farr & Gallagher who is KPMG's outside legal counsel.

While few analysts expect the restatement, which was first reported in The Wall Street Journal, to ultimately drive away many Xerox investors, they also do not expect it to woo many back.

Robert A. Olstein, manager of the Olstein Financial Alert Fund, said he bailed out of Xerox stock in 1998, when he noticed that the debt was building even as the discrepancy between receivables and sales was widening. "The ratios were going off the wall," he said, "so we began to mistrust the earnings."

Mr. Olstein wants to see a lot more numbers before he will say he trusts the earnings. The restatement has not increased his wariness — "Xerox has new management, and my gut feeling is that they don't play games," he said — but he is not rushing to back into the stock. "I might bet on this company if it didn't have such a high debt load," he said, "but right now I still don't like the ratio of risk to reward."