Nokia 2009 Annual Report Download - page 196

1. Accounting principles (Continued)
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 number of customer financing arrangements 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 past
alleged 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. The ultimate outcome or actual cost of settling an individual infringement may materially
vary from estimates.
Legal contingencies
Legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions
against the Group. Provisions are recorded for pending litigation when it is determined that an
unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the
inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may
materially vary from estimates.
Capitalized development costs
The Group capitalizes certain development costs when it is probable that a development project will
generate future economic benefits and certain criteria, including commercial and technological
F22
Notes to the Consolidated Financial Statements (Continued)