What Broadband Providers Get Wrong About Construction in Progress

Construction-in-progress accounting requires disciplined tracking, timely placed-in-service decisions, and alignment with grant and audit requirements

Article 3 of 5, Theme 2: Technical Accounting and Audit Alignment for Broadband Providers

For broadband providers, construction in progress (CIP) is often one of the largest, and most misunderstood, line items on the balance sheet. Whether you are laying fiber, setting poles, or installing network equipment, tracking construction costs accurately is essential. Even well-managed companies can miss steps that later create audit questions, misaligned grant reporting, or miscalculated depreciation.

If your company is expanding rapidly, entering new grant-funded builds, or adopting new systems, understanding CIP is more than an accounting exercise, it is a way to protect your financial statements and support strategic decision-making.

The basics: What counts as CIP?

CIP includes costs directly tied to building assets that are not yet ready for use. For broadband providers, this often means:

Fiber optic cable and conduit installation
Make-ready work and utility pole replacements
Labor and materials for network buildouts
Permitting and engineering fees
Equipment awaiting deployment

CIP is recorded as an asset until a service area is operational. At that point, costs are transferred into fixed assets (plant or network equipment), and depreciation begins.

The common mistakes we see

1. Capitalizing costs that should be expensed

A frequent mistake is trying to capitalize costs before they meet GAAP criteria. Examples include:

Pre-award or pursuit costs, like internal salaries for proposal work, external consultants, or preliminary design studies before an award is received. These costs should generally be expensed.
Early-stage planning labor, internal meetings, or feasibility studies not tied to specific, tangible network assets.

For more detail, see Pre-Award and Pursuit Costs: How to Account for the Work It Takes to Win the Grant.
Misclassifying these costs inflates CIP, complicates grant reporting, and can cause audit questions or findings.

Tip: Track pre-award and pursuit costs separately from capitalizable construction costs.

2. Delaying placed-in-service recognition

Another common error is keeping completed service areas in CIP for too long. Depreciation should start when a service area is ready for its intended use, even if minor construction or finishing touches are still underway elsewhere.

For broadband networks, it is common for a service area to be “lit” and serving customers while final splicing, testing, or permitting continues. Costs directly related to these finishing tasks can still be capitalized if they are necessary to make the asset fully functional.

Best practice: Implement an internal certification or sign-off that a service area is operational and revenue-ready. This provides consistent placed-in-service decisions and creates an audit trail. Delaying placed-in-service recognition can distort financial reporting, delay depreciation, and misalign grant drawdowns or reporting.

3. Treating CIP as a single bucket
   CIP should be tracked at the project or service area level, not as one aggregated account. Granularity supports:
   Accurate capitalization by distinguishing completed service areas from ongoing construction
   Allocation of grant proceeds to the correct assets, ensuring proper matching if grant income is recognized over the asset’s useful life
   Correct interest capitalization for projects financed with debt (ASC 835 requires capitalization while assets are under construction)
   Budget alignment and clear funding source reporting

4. Overlooking internal labor
   Internal labor is often underreported or misclassified. Proper treatment includes:
   Direct construction activities are capitalizable if they can be reasonably allocated to a specific service area.
   Labor should be tracked and documented by service area or project to support audit evidence.
   Payroll allocations, fringe benefits, and subcontractor costs should all be reviewed to confirm proper classification between CIP and expense.
   For labor incurred during pre-award or early construction phases, ensure costs are only capitalized if they directly contribute to a tangible, controlled asset.

What good CIP tracking looks like

Strong CIP processes do not require fancy software; they require clear structure and discipline. Best practices include:

Track costs by project or service area. Record separately for each service area to support grant and loan accounting, budget alignment, and funding source reporting.
Use consistent categories. Labor, materials, engineering, permitting—avoid vague labels like “construction” or “other.”
Record in-service dates. Document when a service area is ready for use; this drives depreciation, grant matching, and interest capitalization. A certification or sign-off process is helpful for audit evidence.
Stay connected to procurement. Ensure accounting knows what is ordered, received, installed, or still in storage.

What your auditor will ask for

During an audit, expect detailed requests around CIP, including:

A roll forward of CIP with additions, transfers, and balances by asset type
Supporting documentation for additions: vendor invoices, approvals, internal allocations
A tie-out between grant reporting and financials, reconciling timing differences such as deferred revenue (funds received in advance) or receivables (earned but not collected)
Evidence of consistent application of your capitalization policy and placed-in-service (PIS) determinations

The better your tracking, the faster these schedules can be prepared, and the fewer follow-up questions you will face.

Why it matters for grant recipients

For projects funded by government grant programs, CIP tracking must align with grant terms. This includes:

Tracking costs by funding source
Supporting draw requests with detailed backup
Avoiding capitalized costs in reimbursement claims unless explicitly allowed

Incorrect CIP treatment can cause problems during site visits, grant audits, or funding reconciliations, and may affect your credibility with regulators or grantors.

Federal Communications (FCC), tax, and other reporting impacts

Beyond GAAP and audits, CIP structure affects other obligations:

FCC Broadband Data Collection (BDC): Linking internal build costs to the Broadband Serviceable Location Fabric requires clean, project-level records.
Property and other taxes: Some jurisdictions require gross asset reporting before netting out grants.
Future regulatory reporting: Certain grants assume ongoing cost allocation requirements, so vague CIP records today can mean costly rework later.

Tips to strengthen your CIP accounting

Establish a capitalization policy. Define which costs qualify, when capitalization begins and ends, and how service areas are closed out. Apply consistently.

Track by project or service area. Do not rely solely on general ledger roll-ups; use accounting or project management tools.
Review monthly. Monitor timing, confirm closeouts, and ensure transfers to fixed assets occur before year-end.
Engage auditors early. A pre-year-end review helps identify issues and prevents surprises during fieldwork.
Use a certification or sign-off process. Document that a service area is operational and revenue-ready before stopping capitalization and starting depreciation.

Bottom line

CIP may not get much attention until an audit or compliance review exposes problems. Building disciplined tracking, documentation, and PIS controls now is far easier than untangling errors later.

At Keiter, we help broadband providers refine CIP policies, strengthen documentation, and prepare for audits. If your company is scaling network builds and wants confidence in financial reporting, we can help. Contact your Keiter Opportunity Advisor | Email | Call 804.747.0000.

Looking ahead

Accurate CIP accounting sets the stage for what comes next—how and when revenue is recognized. In the next article, we will explore how broadband providers apply ASC 606, including common blind spots in bundled services, promotional pricing, and contract costs, and how to align revenue recognition with the economic reality of your business.

• Article 1: Pre-Award and Pursuit Costs
• Article 2: Are You Categorizing Your Network Costs Correctly?
• Article 4: Broadband Revenue Recognition: ASC 606 Blindspots
• Article 5: Grant Accounting (ASC 958 and IAS 20)

Resources and Reading

• FASB ASC guidance:

  • FASB ASC 835-20, Interest—Capitalization of Interest

  • FASB ASC 360, Property, Plant, and Equipment

• FCC reporting requirements:

  • https://www.fcc.gov/BroadbandData/filers

  • https://www.fcc.gov/sites/default/files/bdc-availability-data-specifications.pdf