Nokia 2009 Annual Report Download - page 193

1. Accounting principles (Continued)
Qualifying hedges are those properly documented hedges of the foreign exchange rate risk of foreign
currency denominated net investments that meet the requirements set out in IAS 39. The hedge must
be effective both prospectively and retrospectively.
The Group claims hedge accounting in respect of forward foreign exchange contracts, foreign currency
denominated loans, and options, or option strategies, which have zero net premium or a net
premium paid, and where the terms of the bought and sold options within a collar or zero premium
structure are the same.
For qualifying foreign exchange forwards, the change in fair value that reflects the change in spot
exchange rates is deferred in shareholders’ equity. The change in fair value that reflects the change in
forward exchange rates less the change in spot exchange rates is recognized in the profit and loss
account within financial income and expenses. For qualifying foreign exchange options the change in
intrinsic value is deferred in shareholders’ equity. Changes in the time value are at all times
recognized directly in the profit and loss account as financial income and expenses. If a foreign
currency denominated loan is used as a hedge, all foreign exchange gains and losses arising from the
transaction are recognized in shareholders’ equity. In all cases the ineffective portion is recognized
immediately in the income statement as financial income and expenses.
Accumulated fair value changes from qualifying hedges are released from shareholders’ equity into
the income statement only if the legal entity in the given country is sold, liquidated, repays its share
capital or is abandoned.
Income taxes
The tax expense comprises current tax and deferred tax. Current taxes are based on the results of the
Group companies and are calculated according to local tax rules. Taxes are recognized in the income
statement, except to the extent that it relates to items recognized in the other comprehensive income
or directly in equity, in which case the tax is recognized in other comprehensive income or equity,
respectively.
Deferred tax assets and liabilities are determined, using the liability method, for all temporary
differences arising between the tax bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. Deferred tax assets are recognized to the extent that it is probable
that future taxable profit will be available against which the unused tax losses or deductible
temporary differences can be utilized. When circumstances indicate it is no longer probable that
deferred tax assets will be utilized they are assessed for realizability and adjusted as necessary.
Deferred tax liabilities are recognized for temporary differences that arise between the fair value and
tax base of identifiable net assets acquired in business combinations. Deferred tax assets and
deferred tax liabilities are offset for presentation purposes when there is a legally enforceable right to
set off current tax assets against current tax liabilities, and the deferred tax assets and the deferred
tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable
entity or different taxable entities which intend either to settle current tax liabilities and assets on a
net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in
which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
The enacted or substantially enacted tax rates as of each balance sheet date that are expected to
apply in the period when the asset is realized or the liability is settled are used in the measurement
of deferred tax assets and liabilities.
F19
Notes to the Consolidated Financial Statements (Continued)