As general counsel brace for what could be a yearlong impact from COVID-19 on their company's revenue and losses, a federal regulator has warned not to try to hide the ugly truth.

"We are facing an unprecedented national challenge—a challenge that has significant implications for financial reporting, our markets, and our economy more generally," said a statement issued Friday by Sagar Teotia, chief accountant for the U.S. Securities and Exchange Commission. "As we face these challenging times, investors and other stakeholders need high-quality financial information more than ever."

Arthur Greenspan, a partner at Richards Kibbe & Orbe in New York, told Corporate Counsel the statement in full suggests there could be higher scrutiny of financial statements.

"The simplest point is, I think, companies and their general counsel need to work with their CFOs [chief financial officers] and auditors to ensure that all their numbers in their first-quarter financial statements, particularly revenues and losses, are accurate and defensible because they will certainly be scrutinized."

Greenspan added, "They need to take care not to cut corners to make their numbers look better than their competitors."

Greenspan co-authored a recent compliance article that warned companies of likely increased enforcement activity by the commission, as well as by the Department of Justice, in the wake of COVID-19. The article especially cautioned about accounting fraud resulting from the misuse of non-GAAP accounting measures.

"Companies and their senior executives risk SEC and criminal fraud charges based on misuse of non-GAAP metrics, and audit committee members risk scrutiny for failure to maintain adequate internal controls concerning non-GAAP metrics," the article warned.

Teotia's statement also mentions the use of non-GAAP accounting and outlines a number of steps taken by the commission to help companies provide accurate information.

For example, it has conditionally extended the temporary 45-day grace period for public company registrants to file reports, such as first-quarter financial statements, through July 1. This will give companies more time to assess their financial situation and consider their disclosure obligations.

Teotia's statement also says his office is reaching out to others in the financial reporting system, including auditors, audit committee members, investors and other regulators, to discuss current and emerging market developments.

In addition, the statement says his office is available for consultation and encourages stakeholders to make contact if they have questions.

"We recognize that the accounting and financial reporting implications of COVID-19 may require companies to make significant judgments and estimates. Certain judgments and estimates can be challenging in an environment of uncertainty," Teotia wrote.

The statement points out that through the years his office "has consistently not objected to well-reasoned judgments that entities have made, and we will continue to apply this perspective."

Some accounting areas that might involve "significant judgments and estimates in light of the evolving status of COVID-19" include fair value and impairment considerations, leases, and debt modifications or restructurings.

Teotia wrote that his office continues to interact with regulators internationally who are dealing with the same challenges and uncertainties.

Despite the unprecedented times, the statement urged "all participants in the financial reporting system to continue to work together to provide investors with the high-quality financial information they need to make decisions amidst uncertainty."