Nokia 2008 Annual Report Download - page 67

report. Certain of our accounting policies require the application of judgment by management in
selecting appropriate assumptions for calculating financial estimates, which inherently contain some
degree of uncertainty. Management bases its estimates on historical experience and various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the reported carrying values of assets and liabilities and the
reported amounts of revenues and expenses that may not be readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
We believe the following are the critical accounting policies and related judgments and estimates
used in the preparation of our consolidated financial statements. We have discussed the application
of these critical accounting estimates with our Board of Directors and Audit Committee.
Revenue Recognition
Sales from the majority of the Group are recognized when the significant risks and rewards of
ownership have transferred to the buyer, continuing managerial involvement usually associated with
ownership and effective control have ceased, the amount of revenue can be measured reliably, it is
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. The remainder of
revenue is recorded under the percentage of completion method.
Devices & Services and certain NAVTEQ and Nokia Siemens Networks revenues are generally
recognized when the significant risks and rewards of ownership have transferred to the buyer,
continuing managerial involvement usually associated with ownership and effective control have
ceased, the amount of revenue can be measured reliably, it is 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. This requires us to assess at the point of delivery
whether these criteria have been met. When management determines that such criteria have been
met, revenue is recognized. We record estimated reductions to revenue for special pricing
agreements, price protection and other volume based discounts at the time of sale, mainly in the
mobile device business. Sales adjustments for volume based discount programs are estimated based
largely on historical activity under similar programs. Price protection adjustments are based on
estimates of future price reductions and certain agreed customer inventories at the date of the price
adjustment. An immaterial part of the revenue from products sold through distribution channels is
recognized when the reseller or distributor sells the product to the enduser. Devices & Services and
certain Nokia Siemens Networks service revenue is generally recognized on a straight line basis over
the service period unless there is evidence that some other method better represents the stage of
completion. Devices & Services and NAVTEQ license fees from usage are recognized in the period in
which the customer reports them to the Group.
Devices & Services, NAVTEQ and Nokia Siemens Networks may enter into multiple component
transactions consisting of any combination of hardware, services and software. The commercial effect
of each separately identifiable element of the transaction is evaluated in order to reflect the
substance of the transaction. The consideration from these transactions is allocated to each separately
identifiable component based on the relative fair value of each component. The consideration
allocated to each component is recognized as revenue when the revenue recognition criteria for that
element have been met. If the Group is unable to reliably determine the fair value attributable to the
separately identifiable components, the Group defers revenue until all components are delivered and
services have been performed. The Group determines the fair value of each component by taking into
consideration factors such as the price when the component is sold separately by the Group, the price
when a similar component is sold separately by the Group or a third party and cost plus a reasonable
margin.
Nokia Siemens Networks revenue and cost of sales 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. This occurs when total
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