Expensing capital items (like meters, transformers, or line extensions) instead of capitalizing them — or capitalizing routine maintenance — leads to distorted operating expenses and misstated assets. Set a capitalization limit for non-construction items and establish a work order system for construction items. Training your team will go a long way toward accuracy in accounting for projects.

AFUDC should be applied only to qualifying construction projects. Misapplication — such as applying it to expense items or not recording it at all — misstates both interest expense and asset values.

Utilities that deviate from the prescribed chart of accounts risk inconsistent financial reporting and inaccurate rate setting. Misclassifications can also make financial results less reflective of actual operations and hinder meaningful benchmarking with peer utilities.

If different departments apply capitalization thresholds or useful lives inconsistently, it results in uneven financial reporting, challenges in audits, and difficulty justifying costs in rate studies.

Overhead items like IT, fleet, finance, and Human Resources should be spread across functions (power, water, sewer, etc.) using industry methods like the 3-point formula for consistency and defendability in rate cases.

When developers or customers contribute funds for utility construction, failing to track these contributions correctly can cause misstated revenue, assets, and potentially refunds to existing customers.

Utilities provide service continuously, but billing cycles cut off mid-month. Missing or poor unbilled revenue accruals understate revenues and receivables, creating rate-setting and audit issues.

Construction work orders left open for years distort work-in-progress balances, delay depreciation, and can mask stranded or abandoned projects that should be written off.

Revenue is the most material line item. Weak segregation of duties, poor system reconciliation, or lack of periodic testing often result in misstated financial results and audit adjustments.

New standards — like GASB 87 on leases, GASB 96 on subscription IT arrangements, or GASB 103 on financial reporting — significantly impact utilities. Falling behind creates compliance risk and extra audit costs.