Nokia 2009 Annual Report Download - page 194

1. Accounting principles (Continued)
Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources will be required to settle the obligation and a
reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed,
the reimbursement is recognized as an asset only when the reimbursement is virtually certain. At
each balance sheet date, the Group assesses the adequacy of its preexisting provisions and adjusts
the amounts as necessary based on actual experience and changes in future estimates.
Warranty provisions
The Group provides for the estimated liability to repair or replace products under warranty at the
time revenue is recognized. The provision is an estimate calculated based on historical experience of
the level of repairs and replacements.
Intellectual property rights (IPR) provisions
The Group provides for the estimated future settlements related to asserted and unasserted past
alleged IPR infringements based on the probable outcome of potential infringement.
Tax provisions
The Group recognizes a provision for tax contingencies based upon the estimated future settlement
amount at each balance sheet date.
Restructuring provisions
The Group provides for the estimated cost to restructure when a detailed formal plan of restructuring
has been completed and the restructuring plan has been announced.
Other provisions
The Group recognizes the estimated liability for noncancellable purchase commitments for inventory
in excess of forecasted requirements at each balance sheet date.
The Group provides for onerous contracts based on the lower of the expected cost of fulfilling the
contract and the expected cost of terminating the contract.
Sharebased compensation
The Group offers three types of global equity settled sharebased compensation schemes for
employees: stock options, performance shares and restricted shares. Employee services received, and
the corresponding increase in equity, are measured by reference to the fair value of the equity
instruments as of the date of grant, excluding the impact of any nonmarket vesting conditions. Non
market vesting conditions attached to the performance shares are included in assumptions about the
number of shares that the employee will ultimately receive. On a regular basis, the Group reviews the
assumptions made and, where necessary, revises its estimates of the number of performance shares
that are expected to be settled. Sharebased compensation is recognized as an expense in the income
statement over the service period. A separate vesting period is defined for each quarterly lot of the
stock options plans. When stock options are exercised, the proceeds received net of any transaction
costs are credited to share issue premium and the reserve for invested nonrestricted equity.
Treasury shares
The Group recognizes acquired treasury shares as a deduction from equity at their acquisition cost.
When cancelled, the acquisition cost of treasury shares is recognized in retained earnings.
F20
Notes to the Consolidated Financial Statements (Continued)