You can see similar behavior (hiding issues, lying about them) in any scenario in which punishment is tied to the failure to meet the metrics. When the metric becomes the goal, people will game the metric in order to avoid punishment and/or reap the rewards.
The only kind of measurement that doesn't cause this behavior is the neutral measurement - measurement which is guaranteed not to change the decisions directly, but only serve as information which is later used in high-level optimization of systemic processes. In context of software companies, it would mean that status reports should only be reviewed in combination to other factors, such as tool used, features implemented, deadlines tightened, etc., and only to further understand how to optimize the process to avoid human error.
It's risky to implement that, because you have to trust your employees enough to say "you won't be fired because of your metrics, ever", but I believe it's less worse than having people falsely report good metrics.