Nokia 2008 Annual Report Download - page 164

1. Accounting principles (Continued)
probable that economic benefits associated with the transaction will flow to the Group and the costs
incurred or to be incurred in respect of the transaction can be measured reliably. Sales may materially
change if management’s assessment of such criteria was determined to be inaccurate.
The Group makes price protection adjustments based on estimates of future price reductions and
certain agreed customer inventories at the date of the price adjustment. Possible changes in these
estimates could result in revisions to the sales in future periods.
Revenue from contracts involving solutions achieved through modification of complex
telecommunications equipment is recognized on the percentage of completion basis when the
outcome of the contract can be estimated reliably. Recognized revenues and profits are subject to
revisions during the project in the event that the assumptions regarding the overall project outcome
are revised. Current sales and profit estimates for projects may materially change due to the early
stage of a longterm project, new technology, changes in the project scope, changes in costs, changes
in timing, changes in customers’ plans, realization of penalties, and other corresponding factors.
Customer financing
The Group has provided a limited amount of customer financing and agreed extended payment terms
with selected customers. Should the actual financial position of the customers or general economic
conditions differ from assumptions, the ultimate collectability of such financings and trade credits
may be required to be reassessed, which could result in a writeoff of these balances and thus
negatively impact profits in future periods. The Group endeavors to mitigate this risk through the
transfer of its rights to the cash collected from these arrangements to third party financial institutions
on a nonrecourse basis in exchange for an upfront cash payment.
Allowances for doubtful accounts
The Group maintains allowances for doubtful accounts for estimated losses resulting from the
subsequent inability of customers to make required payments. If the financial conditions of customers
were to deteriorate, resulting in an impairment of their ability to make payments, additional
allowances may be required in future periods.
Inventoryrelated allowances
The Group periodically reviews inventory for excess amounts, obsolescence and declines in market
value below cost and records an allowance against the inventory balance for any such declines. These
reviews require management to estimate future demand for products. Possible changes in these
estimates could result in revisions to the valuation of inventory in future periods.
Warranty provisions
The Group provides for the estimated cost of product warranties at the time revenue is recognized.
The Group’s warranty provision is established based upon best estimates of the amounts necessary to
settle future and existing claims on products sold as of each balance sheet date. As new products
incorporating complex technologies are continuously introduced, and as local laws, regulations and
practices may change, changes in these estimates could result in additional allowances or changes to
recorded allowances being required in future periods.
Provision for intellectual property rights, or IPR, infringements
The Group provides for the estimated future settlements related to asserted and unasserted IPR
infringements based on the probable outcome of potential infringement. IPR infringement claims can
last for varying periods of time, resulting in irregular movements in the IPR infringement provision.
F20
Notes to the Consolidated Financial Statements (Continued)