Nokia 2011 Annual Report Download - page 228

Accumulated changes in fair value from qualifying hedges are released from shareholders’ equity into
the income statement as adjustments to sales and cost of sales, in the period when the hedged cash
flow affects the income statement. If the hedged cash flow is no longer expected to take place, all
deferred gains or losses are released immediately into the income statement as adjustments to sales
and cost of sales. If the hedged cash flow ceases to be highly probable, but is still expected to take
place, accumulated gains and losses remain in equity until the hedged cash flow affects the income
statement.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under
IAS 39 are recognized immediately in the income statement. The changes in fair value of derivative
instruments that directly relate to normal business operations are recognized within other operating
income and expenses. The changes in fair value from all other derivative instruments are recognized in
financial income and expenses.
Cash flow hedges: Hedging of foreign currency risk of highly probable business acquisitions and other
transactions
The Group hedges the cash flow variability due to foreign currency risk inherent in highly probable
business acquisitions and other future transactions that result in the recognition of non-financial assets.
When those non-financial assets are recognized in the statement of financial position, the gains and
losses previously deferred in equity are transferred from equity and included in the initial acquisition
cost of the asset. The deferred amounts are ultimately recognized in the profit and loss as a result of
goodwill assessments in case of business acquisitions and through depreciation in the case 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 the income statement.
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