Nokia 2010 Annual Report Download - page 206

1. Accounting principles (Continued)
of other assets. In order to apply for hedge accounting, the forecasted transactions must be highly
probable and the hedges must be highly effective 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 income statement
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 income statement as financial income and expenses. In all cases the ineffective portion
is recognized immediately in the income statement as financial income and expenses.
Cash flow hedges: Hedging of cash flow variability on variable rate liabilities
The Group applies cash flow hedge accounting for hedging cash flow variability on variable rate
liabilities. The effective portion of the gain or loss relating to interest rate swaps hedging variable
rate borrowings is deferred in shareholders’ equity. The gain or loss relating to the ineffective portion
is recognized immediately in the income statement as financial income and expenses. For hedging
instruments closed before the maturity date of the related liability, hedge accounting will
immediately discontinue from that date onwards, with all the cumulative gains and losses on the
hedging instruments recycled gradually to income statement in the periods when the hedged variable
interest cash flows affect income statement.
Fair value hedges
The Group applies fair value hedge accounting with the objective to reduce the exposure to
fluctuations in the fair value of interestbearing liabilities due to changes in interest rates and foreign
exchange rates. Changes in the fair value of derivatives designated and qualifying as fair value
hedges, together with any changes in the fair value of the hedged liabilities attributable to the
hedged risk, are recorded in the income statement within financial income and expenses.
If a hedge no longer meets the criteria for hedge accounting, hedge accounting ceases and any fair
value adjustments made to the carrying amount of the hedged item during the periods the hedge
was effective are amortized to profit or loss based on the effective interest method.
Hedges of net investments in foreign operations
The Group also applies hedge accounting for its foreign currency hedging on net investments.
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 income statement
F18
Notes to the Consolidated Financial Statements (Continued)