Nokia 2011 Annual Report Download - page 234

Fair value of derivatives and other financial instruments
The fair value of financial instruments that are not traded in an active market (for example, unlisted
equities, currency options and embedded derivatives) are determined using various valuation
techniques. The Group uses judgment to select an appropriate valuation methodology as well as
underlying assumptions based on existing market practice and conditions. Changes in these
assumptions may cause the Group to recognize impairments or losses in future periods.
Income taxes
Management judgment is required in determining current tax expense, tax provisions, deferred tax
assets and liabilities and the extent to which deferred tax assets can be recognized. Each reporting
period they are assessed for realizability and when circumstances indicate it is no longer probable that
deferred tax assets will be utilized, they are adjusted as necessary. If the final outcome of these
matters differs from the amounts initially recorded, differences may impact the income tax expense in
the period in which such determination is made.
Primarily in Finland and Germany but also in certain other jurisdictions the utilization of deferred tax
assets is dependent on future taxable profit in excess of the profits arising from reversal of existing
taxable temporary differences. The recognition of deferred tax assets is based upon whether it is more
likely than not that sufficient taxable profits will be available in the future from which the reversal of
temporary differences and tax losses can be deducted. Recognition therefore involves judgment with
regard to future financial performance of a particular legal entity or tax group in which the deferred tax
asset has been recognized.
Pensions
The determination of pension benefit obligation and expense for defined benefit pension plans is
dependent on the selection of certain assumptions used by actuaries in calculating such amounts.
Those assumptions include, among others, the discount rate, expected long-term rate of return on plan
assets and annual rate of increase in future compensation levels. A portion of plan assets is invested in
equity securities, which are subject to equity market volatility. Changes in assumptions and actuarial
conditions may materially affect the pension benefit obligation and future expense. See also Note 5.
Share-based compensation
The Group operates various types of equity settled share-based compensation schemes for
employees. Fair value of stock options is based on certain assumptions, including, among others,
expected volatility and expected life of the options. Non market related vesting conditions attached to
performance shares are included in assumptions about the number of shares that the employee will
ultimately receive relating to projections of net sales and earnings per share. Significant differences in
equity market performance, employee option activity and the Group’s projected and actual net sales
and earnings per share performance, may affect future expense. See also Note 24.
New accounting pronouncements under IFRS
The Group will adopt the following new and revised standards, amendments and interpretations to
existing standards issued by the IASB that are expected to be relevant to its operations and financial
position:
IFRS 9 Financial Instruments will change the classification, measurement and impairment of financial
instruments based on the Group’s objectives for the related contractual cash flows.
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