General accounting policies (Policies)

12 Months Ended

Dec. 31, 2025

General Accounting Policies [Abstract]

Basis of presentation and statement of compliance

Basis of presentation and statement of

compliance

The consolidated financial statements are prepared in accordance

with IFRS® Accounting Standards as issued by the International

Accounting Standards Board (IASB) and as adopted by the

European Union (EU). The consolidated financial statements also

conform to Finnish accounting and company legislation.

The consolidated financial statements are presented in millions

of euros (EURm), except when otherwise noted, and are prepared

under the historical cost convention, except when otherwise

disclosed in the accounting policies in the specific notes.

Other information

Other information

Presentation of the results of venture fund investments

In 2025, Nokia completed a strategic review of its venture fund

investment activities. As a result, Nokia no longer views broad-

based venture fund investments as having a strategic role and

has initiated a process to scale down these investments.

Consequently, the presentation of the results of venture fund

investments as operating activities is no longer considered

relevant, and therefore beginning from 2025, Nokia is

presenting the gains and losses from venture fund investments,

including the changes in fair value and the fund management

fees, as financial income. For the segment reporting purposes,

the results of venture fund investments had previously been

included in the operating results of Group Common and Other.

The comparative financial information for 2024 and 2023 has

been recast accordingly.

As a result of the recast, in 2024, selling, general and

administrative costs decreased by EUR 18 million, other

operating income decreased by EUR 47 million and financial

income increased by EUR 29 million. In 2023, selling, general

and administrative costs decreased by EUR 15 million, other

operating income increased by EUR 57 million and financial

income decreased by EUR 72 million.

Additionally, in 2024 and 2023, EUR 29 million and EUR 72 million,

respectively, was reclassified to financial income and expenses

from gain/loss from other financial assets and other adjustments,

net within adjustments in the statement of cash flows.

Statutory reporting requirement in Germany

The fully consolidated German subsidiary, Nokia Solutions and

Networks GmbH & Co. KG, registered in the commercial register

of Munich under HRA 88537, has made use of the exemption

available under § 264b and § 291 of the German Commercial

Code (HGB).

Principles of consolidation

Principles of consolidation

The consolidated financial statements comprise the financial

statements of the Parent Company, and each company over

which it exercises control. Control over an entity exists when

Nokia is exposed, or has rights, to variable returns from its

involvement with the entity and has the ability to affect those

returns through its power over the entity. Presumption is that a

majority of voting rights results in control. To support this

presumption, Nokia considers all relevant facts and

circumstances when assessing if it has power over the entity

including voting rights and potential voting rights, rights to

appoint key management personnel and rights arising from

other contractual arrangements. Consolidation of a subsidiary

begins when control over it is obtained, and it ceases when the

control is lost.

All intercompany transactions are eliminated in the

consolidation process. Non-controlling interest represents the

proportion of net profit or loss, other comprehensive income

and net assets in subsidiaries that is not attributable to the

equity holders of the Parent.

Investments in associates and joint ventures

Investments in associates and joint ventures

An associate is an entity over which Nokia exercises significant

influence. A joint venture is a type of joint arrangement whereby

the parties that have joint control of the arrangement have

rights to the net assets of the arrangement.

Nokia’s investments in associates and joint ventures are

accounted for using the equity method. Under the equity

method, the investment in an associate or joint venture is

initially recognized at cost. The carrying amount of the

investment is adjusted to recognize changes in Nokia’s share of

net assets of the associate or joint venture since the acquisition

date. Nokia’s share of profits and losses of associates and joint

ventures is reflected in the consolidated income statement. Any

change in other comprehensive income of associates and joint

ventures is presented as part of Nokia’s other comprehensive

income.

Functional and presentation currency

Foreign currency translation

Functional and presentation currency

The consolidated financial statements are presented in euro,

the functional and presentation currency of the Parent

Company. The financial statements of all Group companies are

measured using the functional currency, which is the currency

of the primary economic environment in which the entity

operates.

Transactions in foreign currencies

Transactions in foreign currencies

Transactions in foreign currencies are recorded at exchange

rates prevailing at the date of the transaction. For practical

reasons, a rate that approximates the actual rate at the date of

the transaction is often used. Monetary assets and liabilities

denominated in foreign currency are translated at the exchange

rates prevailing at the end of the reporting period.

Foreign exchange gains and losses arising from monetary

assets and liabilities as well as fair value changes of related

hedging instruments are recognized in financial income and

expenses. Foreign exchange gains and losses related to non-

monetary non-current financial investments are included in the

fair value measurement of these investments and recognized in

other financial income.

Foreign Group companies

On consolidation, the assets and liabilities of foreign operations

whose functional currency is other than euro are translated into

euro at the exchange rates prevailing at the end of the

reporting period.

The income and expenses of these foreign operations are

translated into euro at the average exchange rates for the

reporting period. The exchange differences arising from

translation for consolidation are recognized as translation

differences in other comprehensive income. On disposal of a

foreign operation, the cumulative amount of translation

differences relating to that foreign operation is reclassified to

profit or loss.

Use of estimates and critical accounting judgments

1.3. Use of estimates and critical

accounting judgments

The preparation of financial statements requires use of

management judgment in selecting and applying accounting

policies as well as making estimates and assumptions about the

future. These judgments, estimates and assumptions may have

a significant effect on the amounts recognized in the financial

statements.

The estimates and assumptions used in determining the

carrying amounts of assets and liabilities are based on historical

experience, expected outcomes and various other factors that

were available when these financial statements were prepared,

and they are believed to be reasonable under the

circumstances. The estimates and assumptions are reviewed

continually and revised if changes in circumstances occur, or as

a result of new information. As estimates and assumptions

inherently contain a varying degree of uncertainty, actual

outcomes may differ resulting in adjustments to the carrying

amounts of assets and liabilities in subsequent periods.

The accounting matters listed below are determined to involve

the most difficult, subjective or complex judgments, or are

considered as major sources of estimation uncertainty that may

have a significant risk of resulting in a material adjustment to

the carrying amounts of assets and liabilities within the next

financial year. Please refer to the specific notes for further

information on the key accounting estimates and judgments.

Key accounting estimates and judgments	Note
Judgment related to recognition of deferred tax assets	2.5. Income taxes
Judgment related to classification of Submarine Networks as a discontinued operation	2.6. Discontinued operations
Estimate of pension and other post-employment benefit obligations	3.4. Pensions and other post-employment benefits
Judgment related to the determination and fair value measurement of intangible assets in business combination	6.2. Acquisitions

New and amended standards and interpretations

1.4. New and amended standards and

interpretations

On 1 January 2025, Nokia adopted the following amendments

to the accounting standards issued by the IASB and endorsed by

the EU:

▪Amendments to IAS 21 The Effects of Changes in Foreign

Exchange Rates: Lack of Exchangeability

The amendments had no material impact on the measurement,

recognition or presentation of any items in Nokia’s consolidated

financial statements for 2025.

Nokia has not early adopted any new or amended standards or

interpretations that have been issued but are not yet effective.

The new and amended standards and interpretations issued by

the IASB that are effective in future periods are not expected to

have a material impact on the consolidated financial statements

of Nokia when adopted, except for IFRS 18 Presentation and

Disclosure in Financial Statements.

IFRS 18, which was published in April 2024 and will be effective

for annual periods beginning on or after 1 January 2027, will

replace IAS 1 Presentation of Financial Statements.

The objective of IFRS 18 is to enhance the comparability of

financial statements, particularly the income statement,

between companies, improve the transparency and

understandability of non-GAAP measures, and ensure useful

disaggregation of information in the financial statements. To

enable this, IFRS 18 introduces new requirements for

presentation within the income statement, including specified

totals and subtotals and classification of all income and

expenses into one of five categories: operating, investing,

financing, income taxes and discontinued operations, whereof

the first three are new.

Furthermore, the standard requires disclosure of newly defined

management-defined performance measures and aggregation

and disaggregation of financial information based on the

identified ‘roles’ of the primary financial statements and the

notes. In conjunction with the issue of IFRS 18, narrow-scope

amendments have been made to IAS 7 Statement of Cash Flows,

including changing the starting point for determining cash flows

from operations under the indirect method, from ‘profit or loss’

to ‘operating profit or loss’.

Even though IFRS 18 is not changing the recognition and

measurement requirements, the standard is expected to

significantly change how Nokia presents its consolidated

financial statements, particularly the income statement,

statement of cash flows, and notes to the financial statements.

Nokia is currently assessing the impact the adoption will have on

its consolidated financial statements. To date, the following

potential impacts have been identified:

▪Although the adoption of IFRS 18 will have no impact on its

net profit, Nokia expects that grouping items of income and

expenses in the income statement into the new categories

will impact how operating profit is determined. Foreign

exchange differences as well as interest income and

expenses currently aggregated in financial income and

expenses will need to be disaggregated, with some gains or

losses to be presented within the operating category.

Foreign exchange gains and losses as well as interest income

and expenses will be classified in the category where the

related income and expense from the underlying item is

classified.

▪The line items presented on the primary financial

statements might change as a result of the application of

the concept of “useful structured summary” and the

enhanced principles on aggregation and disaggregation.

Nokia does not expect there to be a significant change in the

information that is currently disclosed in the notes because

the requirement to disclose material information remains

unchanged; however, the way in which the information is

grouped might change as a result of the refined

aggregation/disaggregation principles.

▪New disclosures for management-defined performance

measures (MPMs) will be added. In brief, an MPM refers to a

subtotal of income and expenses an entity uses in its

financial communications outside financial statements which

has not been defined in IFRS Accounting Standards. To

improve transparency around these measures, IFRS 18

requires entities to disclose information about all of its

MPMs in a single note, including how the measure is

calculated, how it provides useful information and a

reconciliation to the most comparable subtotal specified by

IFRS Accounting Standards.

▪From the statement of cash flows perspective, the starting

point for calculating cash flows from operating activities will

change to operating profit. Additionally, there will be

changes to how interest received and interest paid are

presented. Interest paid will be presented as financing cash

flows and interest received as investing cash flows, which is

a change from current presentation as part of operating

cash flows.

Nokia will apply IFRS 18 from its mandatory effective date of

1 January 2027. As retrospective application is required, the

comparative information for 2025 and 2026 will be restated

accordingly.

Revenue recognition

Accounting policies

Nokia accounts for a contract with a customer when the

contract has been approved in writing, which is generally

when both parties are committed to perform their respective

obligations, the rights, including payment terms, regarding

the goods and services to be transferred can be identified,

the contract has commercial substance, and collection of the

consideration to which Nokia expects to be entitled is

probable. Management considers only legally enforceable

rights in evaluating the accounting for contracts with

customers. As such, frame agreements that do not create

legally enforceable rights and obligations are accounted for

upon issuance of subsequent legally binding purchase orders

under the frame agreements.

A contract modification or a purchase order is accounted for

as a separate contract if the scope of the contract increases

by additional distinct goods or services, and the price of the

contract increases by an amount that reflects the standalone

selling price of those additional goods or services. If the

additional goods or services are distinct but not sold at a

standalone selling price, the contract modification is

accounted for prospectively. If the additional goods or

services are not distinct, the modification is accounted for

through a cumulative catch-up adjustment.

Nokia recognizes revenue from contracts with customers to

reflect the transfer of promised goods and services to

customers for amounts that reflect the consideration to

which Nokia expects to be entitled in exchange for those

goods and services. The consideration may include variable

amounts, such as volume discounts and sales-based or

usage-based royalties, which Nokia estimates based on the

most likely amount. Nokia includes variable consideration into

the transaction price only to the extent that it is highly

probable that a significant revenue reversal will not occur.

The transaction price also excludes amounts collected on

behalf of third parties.

If the timing of payments provides either the customer or

Nokia with a significant benefit of financing, the transaction

price is adjusted for the effect of financing and the related

interest revenue or interest expense is presented separately

from revenue. As a practical expedient, Nokia does not

account for financing components if, at contract inception,

the consideration is expected to be received within one year

before or after the goods or services have been transferred

to the customer.

Nokia enters into contracts with customers consisting of any

combination of hardware, services and intellectual property.

Hardware and software sold by Nokia includes warranty, which

can either be assurance-type for repair of defects and

replacement of hardware recognized as a centralized

warranty provision, or service-type for scope beyond the

repair of defects or for a time period beyond the standard

assurance-type warranty period and considered as a separate

performance obligation within the context of the contract.

The associated revenue recognized for such contracts

depends on the nature of the underlying goods and services

provided. The promised goods or services in the contract

might include sale of goods, license of intellectual property

and grant of options to purchase additional goods or services

that may provide the customer with a material right. Nokia

conducts an assessment at contract inception to determine

which promised goods and services in a customer contract

are distinct and accordingly identified as performance

obligations.

The standalone selling price of each performance obligation is

determined by considering factors such as the price of the

performance obligation if sold on a standalone basis and the

expected cost of the performance obligation plus a

reasonable margin when price references are not available.

The portion of the transaction price allocated to each

performance obligation is recognized when the revenue

recognition criteria for that performance obligation have

been met.

Nokia allocates the transaction price to each distinct

performance obligation on the basis of their standalone

selling prices, relative to the overall transaction price. If a

standalone selling price is not observable, it is estimated. The

transaction price may include a discount or a variable amount

of consideration that is generally allocated proportionately to

all performance obligations in the contract unless Nokia has

observable evidence that the entire discount relates to only

one or more, but not all, performance obligations in a

contract. The amount of revenue recognized is the amount

allocated to the satisfied performance obligation based on

the relative standalone selling prices. A performance

obligation may be satisfied at a point in time or over time.

As described in Note 4.5. Trade receivables and other

customer-related balances, Nokia presents its customer

contracts in the statement of financial position as either a

contract asset or a contract liability, depending on the

relationship between Nokia’s performance and the

customer’s payment for each individual contract.

Sale of products

Nokia manufactures and sells a range of networking

equipment, covering the requirements of network operators.

Revenue for these products is recognized when control of the

products has transferred, the determination of which may

require judgment. Typically, for standard equipment sales,

control transfers upon delivery. For more complex solutions,

control generally transfers upon acceptance.

In some arrangements, mainly within the Submarine Networks

business which is presented as a discontinued operation and was

sold in 2024, Nokia’s performance does not create an asset with

an alternative use and Nokia recognizes revenue over time using

the output method, which faithfully depicts the manner in which

the asset is transferred to the customer as well as Nokia’s

enforceable rights to payment for the work completed to date,

including margin. The output measure selected by Nokia for each

contract may vary depending on the nature of the contract.

Sale of services

Nokia provides services related to the provision of networking

equipment, ranging from managing a customer’s network and

product maintenance services to network installation,

integration and optimization. Revenue for each separate service

performance obligation is recognized as or when the customer

obtains the benefits of Nokia’s performance. Service revenue is

recognized over time for managed and maintenance services, as

in these cases Nokia performs throughout a fixed contract term

and the customer simultaneously receives and consumes the

benefits as Nokia performs. In some cases, Nokia performs

services that are subject to customer acceptance where revenue

is recognized when the customer acceptance is obtained.

Sale of intellectual property licenses

Nokia provides its customers with licenses to intellectual

property (IP) owned by Nokia by granting software licenses and

rights to benefit from Nokia’s IP in their products. When a

software license is sold, revenue is recognized upon delivery or

acceptance of the software, as Nokia has determined that each

software release is distinct, and the license is granted for

software as it exists when the control transfers to the customer.

When Nokia grants customers a license to use IP owned by

Nokia, the associated license fee revenue is recognized in

accordance with the substance of the relevant agreements. In

the majority of contracts, Nokia retains obligations to

continue to develop and make available to the customer the

latest IP in the licensed assets during the contract term, and

therefore revenue is recognized on a straight-line basis over

the period during which Nokia is expected to perform.

Recognition of the revenue on a straight-line basis over the

term of the license is considered the most faithful depiction of

Nokia’s satisfaction of the performance obligation as the IP

being licensed towards the customer includes new inventions

patented by Nokia that are highly interdependent and

interrelated and created through the course of continuous

research and development (R&D) efforts that are relatively

stable throughout the year. In some contracts, Nokia has no

remaining obligations to perform after granting a license to the

initial IP, and licensing fees are non-refundable. In these cases,

revenue is recognized at the beginning of the license term.

Segment information

Accounting policies

Nokia has four operating and reportable segments for

financial reporting purposes: (1) Network Infrastructure,

(2) Cloud and Network Services, (3) Mobile Networks and

(4) Nokia Technologies. In addition, Nokia provides net

sales disclosure for the following business units within the

Network Infrastructure segment: (i) Optical Networks, (ii) IP

Networks and (iii) Fixed Networks.

The President and CEO is the chief operating decision-

maker monitoring the operating results of segments for

the purpose of assessing performance and making

decisions about resource allocation. Key financial

performance measures of the segments comprise

primarily net sales and segment operating profit. The

evaluation of segment performance and allocation of

resources is primarily based on segment operating profit

which the management believes is the most relevant

measure for this purpose. Segment operating profit

excludes intangible asset amortization and other purchase

price fair value adjustments, goodwill impairments,

restructuring-related charges and certain other items of

income and expenses that may not be indicative of the

business operating results.

Accounting policies of the segments are the same as

those for the Group except for the aforementioned items

of income and expenses that are not allocated to the

segments. Inter-segment revenues and transfers are

accounted for as if the revenues were to third parties, that

is, at current market prices.

Operating expenses and other operating income

Accounting policies

Nokia presents its income statement based on the

function of expenses as it considers this to provide more

relevant information about its financial performance.

Information about the nature of expenses is provided in

the notes. Certain items of income and expenses that

Nokia considers to be related to its operating activities but

not belonging to any specific functions, are presented as

other operating income and expenses.

Government grants received as compensation for

expenses incurred are recognized as a reduction of the

related expenses except for certain non-recurring grants

that are recognized as other operating income.

Government grants received in the form of R&D tax credits

are recognized as a reduction of R&D expenses if the tax

credit relates to the R&D expenditures incurred by Nokia

and the tax credit is reimbursed in cash by the government

in cases where Nokia is not able to offset it against its

income tax payable. R&D tax credits that do not meet both

conditions are recognized as income tax benefit.

Government grants

Government grants received as compensation for

expenses incurred are recognized as a reduction of the

related expenses except for certain non-recurring grants

that are recognized as other operating income.

Government grants received in the form of R&D tax credits

are recognized as a reduction of R&D expenses if the tax

credit relates to the R&D expenditures incurred by Nokia

and the tax credit is reimbursed in cash by the government

in cases where Nokia is not able to offset it against its

income tax payable. R&D tax credits that do not meet both

conditions are recognized as income tax benefit.

Income taxes

Accounting policies

Income tax expense comprises current tax and deferred tax.

Tax is recognized in the income statement except to the

extent that it relates to items recognized in other

comprehensive income, or directly in equity, in which case the

related tax is recognized in other comprehensive income or

equity, respectively.

Current taxes are calculated based on the results of the

Group companies in accordance with local tax laws and using

tax rates that are enacted or substantively enacted at the

reporting date. Corporate taxes withheld at the source of the

income on behalf of Group companies are accounted for as

income taxes when determined to represent a tax on net

income.

Deferred tax assets and liabilities are determined using the

balance sheet liability method for all temporary differences

arising between the tax bases of assets and liabilities and

their carrying amounts in the statement of financial position.

Deferred tax assets are recognized to the extent it is

probable that future taxable profit will be available against

which the unused tax losses, unused tax credits and

deductible temporary differences can be utilized in the

relevant jurisdictions. Deferred tax assets are assessed for

realizability at each reporting date. When facts and

circumstances indicate it is no longer probable that deferred

tax assets will be utilized, adjustments are made as

necessary.

Deferred tax liabilities are recognized for taxable temporary

differences, and for temporary differences that arise

between the fair value and the tax base of identifiable net

assets acquired in business combinations. Deferred tax

liabilities are not recognized if they arise from the initial

recognition of goodwill. Deferred tax liabilities are recognized

on taxable temporary differences associated with

investments in subsidiaries, associates and joint

arrangements, unless the timing of the reversal of the

temporary difference is controlled by Nokia, and it is probable

that the temporary difference will not reverse in the

foreseeable future.

Nokia applies the exception to recognizing and disclosing

information about deferred tax assets and liabilities related

to Pillar Two income taxes, as provided in the amendments to

IAS 12 issued in May 2023.

Deferred tax assets and deferred tax liabilities are measured

using the enacted or substantively enacted tax rates at the

reporting date that are expected to apply in the period when

the asset is realized or the liability is settled. Deferred tax

assets and liabilities are not discounted.

Deferred tax assets and deferred tax liabilities are offset for

presentation purposes when there is a legally enforceable

right to set off current tax assets against current tax

liabilities, and the deferred tax assets and deferred tax

liabilities relate to income taxes levied by the same taxation

authority on either the same taxable entity or different

taxable entities which intend either to settle current tax

liabilities and assets on a net basis, or realize the assets and

settle the liabilities simultaneously in each future period in

which significant amounts of deferred tax liabilities or

deferred tax assets are expected to be settled or recovered.

Nokia periodically evaluates positions taken in tax returns in

situations where applicable tax regulation is subject to

interpretation. The amounts of current and deferred tax

assets and liabilities are adjusted when it is considered

probable, i.e. more likely than not, that certain tax positions

may not be fully sustained upon review by tax authorities.

The amounts recorded are based on the most likely amount

or the expected value, depending on which method Nokia

expects to better predict the resolution of the uncertainty, at

each reporting date.

Discontinued operations

Accounting policies

Non-current assets or disposal groups are classified as held for sale if their carrying amounts

will be recovered principally through a sale transaction rather than through continuing use. Non-

current assets or disposal groups classified as held for sale are measured at the lower of their

carrying amount and fair value less costs to sell. Non-current assets classified as held for sale,

or included in a disposal group classified as held for sale, are not depreciated or amortized.

Discontinued operation is reported when a component of Nokia, comprising operations and

cash flows that can be clearly distinguished both operationally and for financial reporting

purposes from the rest of Nokia, has been disposed of or is classified as held for sale, and that

component represents a major line of business or geographical area of operations or is part of

a single coordinated plan to dispose of a separate major line of business or geographical area

of operations. Profit or loss from discontinued operations is reported separately from income

and expenses from continuing operations in the consolidated income statement, with prior

periods presented on a comparative basis. Intra-group revenues and expenses between

continuing and discontinued operations are eliminated.

Earnings per share

Accounting policies

Basic earnings per share is calculated by dividing the profit or loss attributable to equity

holders of the parent by the weighted average number of shares outstanding during the year.

Diluted earnings per share is calculated by adjusting the profit or loss attributable to equity

holders of the parent, and the weighted average number of shares outstanding, for the

effects of all dilutive potential ordinary shares. Potential ordinary shares are excluded from

the calculation of diluted earnings per share when they are determined to be antidilutive.

Share-based payments

Accounting policies

Nokia offers three types of global share-based

compensation plans for employees: performance shares,

restricted shares and the employee share purchase plan.

All plans are equity-settled.

Employee services received and the corresponding

increase in equity are measured by reference to the fair

value of the equity instruments at the grant date,

excluding the impact of any non-market vesting

conditions. Plans that apply tranched vesting are

accounted for under the graded vesting model. Share-

based compensation plans are generally conditional on

continued employment as well as the fulfillment of any

performance conditions specified in the award terms. Until

the Nokia shares are delivered, the participants do not

have any shareholder rights, such as voting or dividend

rights, associated with the shares. The share grants are

generally forfeited if the employment relationship with

Nokia terminates prior to vesting. Share-based

compensation is recognized as an expense over the

relevant service periods.

Pensions and other post-employee benefits

Accounting policies

Nokia has various post-employment plans in accordance with the local conditions and

practices in the countries in which it operates. Nokia’s defined benefit plans comprise pension

schemes as well as other benefit plans providing post-employment healthcare and life

insurance coverage to certain employee groups. Defined benefit plans expose Nokia to

various risks such as investment risk, interest rate risk, life expectancy risk, and regulatory/

compliance risk. The characteristics and extent of these risks vary depending on the legal,

fiscal and economic requirements in each country as well as the impact of global events. The

plans are generally funded through payments to insurance companies or contributions to

trustee-administered funds as determined by periodic actuarial calculations.

The costs of defined benefit plans are assessed using the projected unit credit method. The

defined benefit obligation is measured as the present value of the estimated future cash

outflows using interest rates on high-quality corporate bonds or government bonds with

maturities most closely matching expected payouts of benefits. The plan assets are measured

at fair value at the reporting date. Qualifying insurance contracts included within pension plan

assets are measured at fair value based upon the actuarial valuation of the underlying insured

liability. The liability or asset recognized in the statement of financial position is the present

value of the defined benefit obligation at the reporting date less the fair value of plan assets

adjusted for effects of any asset ceiling.

Actuarial valuations for defined benefit plans are performed annually or when a material plan

amendment, curtailment or settlement occurs. Service cost related to employees’ service in

the current period and past service cost resulting from plan amendments and curtailments, as

well as gains and losses on settlements, are presented in cost of sales, research and

development expenses or selling, general and administrative expenses. Net interest and

pension plan administration costs that are not considered in determining the return on plan

assets are presented in financial income and expenses. Remeasurements, comprising actuarial

gains and losses, the effect of the asset ceiling and the return on plan assets, excluding

amounts recognized in net interest, are recognized in other comprehensive income.

Remeasurements are not reclassified to profit or loss in subsequent periods.

In a defined contribution plan, Nokia’s legal or constructive obligation is limited to the amount

that it agrees to contribute to the plan. Nokia’s contributions to defined contribution plans,

multi-employer and insured plans are recognized in the income statement in the period to

which the contributions relate. If a pension plan is funded through an insurance contract

where Nokia does not retain any legal or constructive obligations, the plan is treated as a

defined contribution plan. All arrangements that do not fulfill these conditions are considered

defined benefit plans.

Goodwill and intangible assets

Accounting policies

Intangible assets acquired separately are measured on initial

recognition at cost. Internally generated intangibles, except

for development costs that may be capitalized, are expensed

as incurred. Development costs are capitalized only if Nokia

has the technical feasibility to complete the asset; has an

ability and intention to use or sell the asset; can demonstrate

that the asset will generate future economic benefits; has

resources available to complete the asset; and has the ability

to measure reliably the expenditure during development.

The useful life of Nokia’s intangible assets, other than

goodwill, is finite. Following initial recognition, finite intangible

assets are carried at cost less accumulated amortization and

accumulated impairment losses. Intangible assets are

amortized over their useful lives, generally three years to

twelve years, using the straight-line method, which is

considered to best reflect the pattern in which the asset’s

future economic benefits are expected to be consumed.

Depending on the nature of the intangible asset, the

amortization charges for continuing operations are included

in cost of sales, research and development expenses or

selling, general and administrative expenses.

Goodwill is allocated to the groups of cash-generating units

that are expected to benefit from the synergies of the

related business combination and that reflect the lowest level

at which goodwill is monitored for internal management

purposes. A cash-generating unit, as determined for the

purposes of Nokia’s goodwill impairment testing, is the

smallest group of assets generating cash inflows that are

largely independent of the cash inflows from other assets or

groups of assets. The carrying values of the groups of cash-

generating units include their share of relevant corporate

assets allocated to them on a reasonable and consistent

basis. When the composition of one or more groups of cash-

generating units to which goodwill has been allocated is

changed, the goodwill is reallocated based on the relative

value of the affected groups of cash-generating units.

Nokia tests the carrying value of goodwill for impairment

annually. In addition, Nokia assesses the recoverability of the

carrying value of goodwill and intangible assets if events

or changes in circumstances indicate that the carrying value

may be impaired. Factors that Nokia considers when it

reviews indications of impairment include, but are not limited

to, underperformance of the asset relative to its historical or

projected future results, significant changes in the manner of

using the asset or the strategy for the overall business, and

significant negative industry or economic trends.

Nokia conducts its impairment testing by determining the

recoverable amount for an asset, a cash-generating unit or

groups of cash-generating units. The recoverable amount of

an asset, a cash-generating unit or groups of cash-generating

units is the higher of its fair value less costs of disposal and

its value-in-use. The recoverable amount is compared to the

asset’s, cash-generating unit’s or groups of cash-generating

units’ carrying value. If the recoverable amount for the asset,

cash-generating unit or groups of cash-generating units is

less than its carrying value, the asset is considered impaired

and is written down to its recoverable amount. Impairment

losses are presented in cost of sales, research and

development expenses or selling, general and administrative

expenses, except for impairment losses on goodwill, which

are presented in other operating expenses.

Impairment of goodwill, intangible assets, property, plant and equipment and right-of-use assets

Nokia tests the carrying value of goodwill for impairment

annually. In addition, Nokia assesses the recoverability of the

carrying value of goodwill and intangible assets if events

or changes in circumstances indicate that the carrying value

may be impaired. Factors that Nokia considers when it

reviews indications of impairment include, but are not limited

to, underperformance of the asset relative to its historical or

projected future results, significant changes in the manner of

using the asset or the strategy for the overall business, and

significant negative industry or economic trends.

Nokia conducts its impairment testing by determining the

recoverable amount for an asset, a cash-generating unit or

groups of cash-generating units. The recoverable amount of

an asset, a cash-generating unit or groups of cash-generating

units is the higher of its fair value less costs of disposal and

its value-in-use. The recoverable amount is compared to the

asset’s, cash-generating unit’s or groups of cash-generating

units’ carrying value. If the recoverable amount for the asset,

cash-generating unit or groups of cash-generating units is

less than its carrying value, the asset is considered impaired

and is written down to its recoverable amount. Impairment

losses are presented in cost of sales, research and

development expenses or selling, general and administrative

expenses, except for impairment losses on goodwill, which

are presented in other operating expenses.

Depreciation expense

Land and water areas are not depreciated.

Maintenance, repairs and renewals are generally expensed

in the period in which they are incurred. However, major

renovations are capitalized and included in the carrying

amount of the asset when it is probable that future

economic benefits in excess of the originally assessed

standard of performance of the existing asset will flow to

Nokia. Major renovations are depreciated over the

remaining useful life of the related asset. Leasehold

improvements are depreciated over the shorter of the

lease term and the useful life. Gains and losses on the

disposal of property, plant and equipment are included in

other operating income or expenses.

Leases

Accounting policies

In the majority of its lease agreements, Nokia is acting as a

lessee. Nokia’s leased assets relate mostly to commercial

and industrial properties such as R&D, production and

office facilities. Nokia also leases vehicles provided as

employee benefits and service vehicles. There are only

minor lease contracts, mainly concerning subleases of

vacant leasehold or freehold facilities, where Nokia is

acting as a lessor.

As a lessee, Nokia recognizes a right-of-use asset and a

lease liability at the commencement date of the lease.

Right-of-use assets are measured at cost less

accumulated depreciation and impairment losses, and

adjusted for any remeasurements of the lease liabilities.

Right-of-use assets are depreciated on a straight-line

basis over the lease term as follows:

Buildings	3–22 years
Other	3–5 years

Lease liabilities are initially measured at the present value

of the lease payments made over the lease term. Nokia

uses its incremental borrowing rate to calculate the

present value as the interest rate implicit in the lease is

not readily determinable. Subsequently, lease liabilities are

measured on an amortized cost basis using the effective

interest method. In addition, lease liabilities are

remeasured if there is a lease modification, a change in

the lease term or a change in the future lease payments.

The interest component of the lease payments is

recognized as interest expense in financial expenses.

Nokia applies practical expedients whereby the payments

for short-term leases and leases of low-value assets are

recognized as an operating expense on a straight-line

basis over the lease term. In addition, Nokia does not

separate certain non-lease components from lease

components but instead accounts for each lease

component and associated non-lease component as a

single lease component.

Inventories

Accounting policies

Inventories are measured at the lower of cost and net

realizable value. Cost is determined using standard cost,

which approximates actual cost on a first-in first-out (FIFO)

basis. In addition to the cost of materials and direct labor,

an appropriate proportion of production overheads is

allocated to the cost of inventory. Net realizable value is the

estimated selling price in the ordinary course of business

less the estimated costs necessary to make the sale.

Contract work in progress comprises costs incurred to

date for customer contracts where the contractual

performance obligations are not yet satisfied. Contract

work in progress will be recognized as cost of sales when

the corresponding revenue is recognized.

Trade receivable and other customer-related balances

Customer contracts

Nokia presents its customer contracts in the statement of

financial position as either a contract asset or a contract

liability, depending on the relationship between Nokia’s

performance and the customer’s payment for each individual

contract. On a net basis, a contract asset position represents

where Nokia has performed by transferring goods or services

to a customer before the customer has provided the

associated consideration or before payment is due.

Conversely, a contract liability position represents where a

customer has paid consideration or payment is due, but

Nokia has not yet transferred goods or services to the

customer. Contract assets presented in the statement of

financial position are current in nature while contract

liabilities can be either current or non-current.

Invoices are generally issued as control transfers and/or as

services are rendered. Invoiced receivables represent an

unconditional right to receive the consideration and only the

passage of time is required before the consideration is

received. Invoiced receivables are presented separately from

contract assets as trade receivables in the statement of

financial position. Trade receivables may be converted to

customer loan receivables in certain cases where extended

payment terms are requested. From time to time Nokia may

also extend loans to other third parties and these loans are

accounted for similarly as customer loan receivables. Nokia

sells trade receivables and customer loan receivables to

various financial institutions primarily without recourse in the

normal course of business, in order to manage credit risk and

working capital cycle.

The business model for managing trade receivables and

customer loan receivables is holding receivables to collect

contractual cash flows and selling receivables. Trade

receivables and customer loan receivables are initially

recognized and subsequently remeasured at fair value using

the discounted cash flow method.

The changes in fair value are recognized in the fair value

reserve through other comprehensive income. Interest

calculated using the effective interest method as well as

foreign exchange gains and losses are recognized in financial

income and expenses.

Discounts without performance obligations presented on the

statement of financial position in other current liabilities

relate to discounts given to customers which will be

executable upon satisfying specific criteria. As these

discounts become executable, they are netted against

related trade receivables or customer loan receivables.

Expected Credit Losses

Loss allowance for expected credit losses (ECL) is recognized

on financial assets measured at amortized cost and financial

assets measured at fair value through other comprehensive

income, as well as on financial guarantee contracts and loan

commitments. Nokia continuously assesses its financial

instruments on a forward-looking basis and accounts for the

changes in ECL on a quarterly basis using the following method:

▪ECL = PD x LGD x EAD

▪Probability of Default (PD) is based on the credit rating

profile of the counterparties as well as specific local

circumstances as applicable, unless there are specific

events that would indicate that the credit rating would

not be an appropriate basis for estimating credit risk at

the reporting date.

▪For Loss Given Default (LGD), the recovery rate is based

on the type of receivable, specific local circumstances as

applicable and related collateral arrangements, if any.

▪Exposure at Default (EAD) is normally the nominal value of

the receivable.

Nokia applies a simplified approach to recognize a loss

allowance based on lifetime ECL on trade receivables and

contract assets without significant financing components.

Based on quantitative and qualitative analysis, Nokia has

determined that the credit risk exposure arising from its

trade receivables is low risk. Quantitative analysis focuses

on historical loss rates, historic and projected sales and

the corresponding trade receivables, and overdue trade

receivables including indicators of any deterioration in the

recovery expectation. Qualitative analysis focuses on all

relevant conditions, including customer and country credit

rating, to improve the accuracy of estimating lifetime ECL.

For customer loan receivables, the ECL is calculated

separately for each significant counterparty using the

method described above, including the impact of any

collateral arrangements or other credit enhancements to

LGD. The estimate is based on 12-month ECL unless there

has been a significant increase in credit risk for the specific

counterparty since the initial recognition, in which case

lifetime ECL is estimated. Breaches of contract, credit

rating downgrades and other credit measures are typical

indicators that Nokia takes into consideration when

assessing whether the credit risk on a financial instrument

has increased significantly since initial recognition. Nokia

considers additional indicators to determine if a financial

asset is credit-impaired including whether the

counterparty is in significant financial difficulties and

whether it is becoming probable that the customer will

enter bankruptcy or financial reorganization. Typically

customer loan credit risk is higher than credit risk of trade

receivables and contract assets on average.

The change in the amount of ECL for trade receivables and

contract assets is recognized in other operating expenses

and for customer loan receivables in financial expenses.

For customer loan receivables, the loss allowance is

recorded as an adjustment in other comprehensive

income instead of adjusting the carrying amount that has

already been recorded at fair value. If trade receivables

and customer loan receivables are sold, the impact of ECL

is reversed and the difference between the carrying

amount derecognized and the consideration received is

recognized in financial expenses.

Provisions

Accounting policies

Provision is recognized when Nokia 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. Management judgment may be required in

determining whether it is probable that an outflow of

economic benefits will be required to settle the obligation.

The amount recognized as a provision is based on the best

estimate of unavoidable costs required to settle the

obligation at the end of the reporting period.

When estimating the amount of unavoidable costs,

management may be required to consider a range of

possible outcomes and their associated probabilities, risks

and uncertainties surrounding the events and

circumstances, as well as making assumptions about the

timing of payment. Changes in estimates of timing or

amounts of costs required to settle the obligation may

become necessary as time passes and/or more accurate

information becomes available. Nokia assesses the

adequacy of its existing provisions and adjusts the

amounts as necessary based on actual experience and

changes in facts and circumstances at each reporting date.

Financial assets and liabilities

Accounting policies

Fair value

Fair value is the price that would be received to sell an asset

or paid to transfer a liability in an orderly transaction between

market participants at the measurement date. Financial

assets and liabilities measured at fair value are categorized

based on the availability of observable inputs used to

measure their fair value. Three hierarchical levels are based

on an increasing amount of judgment associated with the

inputs used to derive fair valuation for these assets and

liabilities, Level 1 being market values for exchange traded

products, Level 2 being primarily based on publicly available

market information and Level 3 requiring most management

judgment.

The fair value of an asset or a liability is measured using the

assumptions that market participants would use when pricing

the asset or liability, assuming that market participants act in

their economic best interest, by using quoted market rates,

discounted cash flow analyses and other appropriate

valuation models. Nokia uses valuation techniques that are

appropriate in the circumstances and for which sufficient

data is available to measure fair value, maximizing the use of

relevant observable inputs and minimizing the use of

unobservable inputs. At the end of each reporting period, all

financial assets and liabilities, that are either measured at fair

value on a recurring basis or for which fair values are

disclosed in the financial statements, are categorized within

the fair value hierarchy based on the lowest level input that is

significant to the fair value measurement as a whole.

Classification and measurement

Financial assets

Nokia classifies its financial assets that are debt instruments

in the following three categories: financial assets measured at

amortized cost, financial assets measured at fair value

through other comprehensive income, and financial assets

measured at fair value through profit and loss. The selection

of the appropriate category is made based on both Nokia’s

business model for managing the financial asset and on the

contractual cash flow characteristics of the asset. Equity

instruments and derivative financial assets are measured at

fair value through profit and loss.

Nokia’s business model for managing financial assets is defined

on a portfolio level. The business model must be observable on a

practical level by the way the business is managed. The cash

flows of financial assets measured at amortized cost are solely

payments of principal and interest. These assets are held within

a business model that has an objective to hold assets to collect

contractual cash flows. Financial assets measured at fair value

through other comprehensive income have cash flows that are

solely payments of principal and interest, and these assets are

held within a business model that has an objective that is

achieved both by holding financial assets to collect contractual

cash flows and selling financial assets. For these categories, a

loss allowance is calculated on a quarterly basis based on a

review of collectability (probability of default) and available

collateral (loss given default) for the asset, recorded as an

adjustment to the carrying amount of the asset and recognized

in other financial expenses in the income statement.

Financial assets measured at fair value through profit and loss

are assets that do not fall in either of the categories in the

paragraph above. Additionally, the accounting for financial assets

depends on whether the financial asset is part of a hedging

relationship (refer to Note 5.3. Derivative assets and liabilities).

All purchases and sales of financial assets are recorded on the

trade date, i.e. when Nokia commits to purchase or sell the

asset. All financial assets are initially measured at fair value and

subsequently remeasured according to their classification.

Subsequently, instruments classified as fair value through profit

or loss and instruments classified as fair value through other

comprehensive income are remeasured at fair value, while

instruments classified as amortized cost are remeasured using

the effective interest rate method. For instruments classified as

fair value through profit or loss, the fair value adjustments and

foreign exchange gains and losses are recognized in the income

statement either in other operating income and expenses or

financial income and expenses as determined by the purpose of

the instruments. For instruments classified as fair value through

other comprehensive income, changes in fair value are

recognized in the fair value reserve through other

comprehensive income (refer to Note 5.1. Equity).

For instruments classified as amortized cost, interest

calculated using the effective interest method, as well as

foreign exchange gains and losses, are recognized in financial

income and expenses in the income statement.

A financial asset is derecognized when substantially all the

risks and rewards related to the financial asset have been

transferred to a third party that assumes control of the

asset. On derecognition of a financial asset, the difference

between the carrying amount and the consideration received

is recognized in the income statement either in other

operating income and expenses or financial income and

expenses as determined by the purpose of the instrument.

The FIFO method is used to determine the cost basis of

financial assets at amortized cost that are disposed of.

Financial liabilities

Nokia classifies its financial liabilities as financial liabilities

measured at amortized cost except for derivative liabilities

and the conditional obligation related to Nokia Shanghai Bell,

which are classified as financial liabilities at fair value through

profit and loss.

All financial liabilities are initially recognized at fair value and,

in the case of borrowings and payables, net of transaction

costs. Financial liabilities are subsequently remeasured

according to their classification.

For financial liabilities measured at amortized cost, interest

calculated using the effective interest method, as well as

foreign exchange gains and losses, are recognized in financial

income and expenses in the income statement.

Financial liabilities are derecognized when the related

obligation is discharged, canceled or expired. Additionally, a

substantial modification of the terms of an existing financial

liability is accounted for as a derecognition of the original

financial liability and the recognition of a new financial liability.

On derecognition of a financial liability, the difference

between the carrying amount extinguished and the

consideration paid is recognized in financial income or

expenses in the income statement.

Derivative and firm commitment assets and liabilities

Accounting policies

Fair value

All derivatives are recognized initially at fair value on the date

a derivative contract is entered into and subsequently

remeasured at fair value. The method of recognizing the

resulting gain or loss varies according to whether the

derivatives are designated and qualify under hedge accounting.

Foreign exchange forward contracts are valued at market-

forward exchange rates. Changes in fair value are measured

by comparing these rates with the original contract-forward

rate. Currency options are valued at each reporting date by

using the Garman & Kohlhagen option valuation model.

Interest rate swaps and cross-currency swaps are valued

using the discounted cash flow method.

Hedge accounting

Nokia applies hedge accounting on certain foreign exchange

forward contracts, options or option strategies, and interest

rate derivatives. Qualifying options and option strategies

have zero net premium, or a net premium paid. For option

structures, the critical terms of the purchased and written

options are the same and the notional amount of the written

option component is not greater than that of the purchased

option.

In the fair valuation of foreign exchange forward contracts,

Nokia separates the forward element and considers it to be

the cost of hedging for foreign exchange forward contracts.

In the fair valuation of foreign exchange option contracts,

Nokia separates the time value and considers it to be the cost

of hedging for foreign exchange option contracts. In the fair

valuation of cross-currency swaps, Nokia separates the

foreign currency basis spread and considers it to be the cost

of hedging for cross-currency swaps.

Hedge effectiveness is assessed at inception and

subsequently on a quarterly basis during the hedge

relationship to ensure that an economic relationship exists.

As Nokia only enters in hedge relationships where the critical

terms match, the assessment of effectiveness is done on a

qualitative basis with no significant ineffectiveness expected.

Presentation in the statement of cash flows

The cash flows of a hedge are classified as cash flows from

operating activities in cases where the underlying hedged items

relate to Nokia’s operating activities. When a derivative contract

is accounted for as a hedge of an identifiable position relating to

financing or investing activities, the cash flows of the contract

are classified in the same way as the cash flows of the position

being hedged. Cash flows of derivatives used in hedging the

foreign exchange risk of Nokia’s cash position are presented in

cash flows from investing activities.

Cash flow hedges: hedging of forecast foreign currency

denominated sales and purchases

Nokia applies cash flow hedge accounting primarily to foreign

exchange exposure that arises from highly probable forecast

operative business transactions. The risk management strategy

is to hedge material net exposures (identified standard net sales

exposure minus identified standard costs exposure) by using

foreign exchange forwards and foreign exchange options in a

layered hedging style that follows defined hedging level ranges

and hedge maturities in quarterly time buckets. The hedged item

must be highly probable and present an exposure to variations in

cash flows that could ultimately affect profit or loss.

For qualifying foreign exchange forwards and foreign exchange

options, the change in fair value that reflects the change in spot

exchange rates on a discounted basis is recognized in hedging

reserve through other comprehensive income (refer to Note 5.1.

Equity). The changes in the forward element of the foreign

exchange forwards and the time value of the options that relate

to hedged items are deferred in the cost of hedging reserve

through other comprehensive income (refer to Note 5.1. Equity)

and are subsequently accounted for in the same way as the spot

element or intrinsic value.

In each quarter, Nokia evaluates whether the forecast sales and

purchases are still expected to occur. If a portion of the hedged

cash flow is no longer expected to occur, the hedge accounting

criteria are no longer met and all related deferred gains or losses

are derecognized from fair value and other reserves and

recognized in other operating income and expenses in the

income statement.

If the hedged cash flow ceases to be highly probable, but is

still expected to occur, accumulated gains and losses remain

in fair value and other reserves until the hedged cash flow

affects profit or loss.

Nokia’s risk management objective is to hedge forecast cash

flows until the related revenue has been recognized. Each

hedge relationship is discontinued during the quarter when

the hedge matures, which is also the quarter that it had been

designated to hedge. At this point, the accumulated gain or

loss of cash flow hedges is reclassified to other operating

income and expenses in the income statement. In cases

where the forecast amount of revenue is not recognized

during a quarter, the full accumulated gain or loss of cash

flow hedges designated for said quarter is still reclassified

and the portion related to forecast revenue that was not

recognized is disclosed as hedge ineffectiveness.

As cash flow hedges primarily mature in the same quarter as

the hedged item, there is no significant ineffectiveness

resulting from the time value of money. Nokia will validate the

magnitude of the impact of discounting related to the

amount of gain or loss recognized in fair value and other

reserves on a quarterly basis.

Cash flow and fair value hedges: hedging of foreign

exchange risk of future interest cash flows

Nokia also applies cash flow hedging to future interest cash

flows in foreign currency related to issued bonds. These

future interest cash flows are hedged with cross-currency

swaps that have been bifurcated and designated partly as fair

value hedges (see Fair value hedges: hedging of interest rate

exposure below) to hedge both the foreign exchange and

interest rate benchmark risk component of the issued bond,

and partly as cash flow hedges to hedge the foreign exchange

risk related to the remaining portion of interest cash flows on

the issued bond. The accumulated gain or loss for the part of

these cross-currency swaps designated as cash flow hedges

is initially recorded in hedging reserve through other

comprehensive income and reclassified to profit or loss at

the time when the related interest cash flows are settled.

Fair value hedges: hedging of interest rate exposure

Nokia applies fair value hedge accounting to reduce exposure

to fair value fluctuations of interest-bearing liabilities due to

changes in interest rates and foreign exchange rates. Nokia

uses interest rate swaps and cross-currency swaps aligned

with the hedged items to hedge interest rate risk and

associated foreign exchange risk.

Nokia has entered into long-term borrowings mainly at fixed

rates and has swapped most of them into floating rates in

line with a defined target interest profile. Nokia aims to

mitigate the adverse impacts from interest rate fluctuations

by continuously managing net interest exposure resulting

from financial assets and liabilities by setting appropriate risk

management benchmarks and risk limits. The hedged item is

identified as a proportion of the outstanding loans up to the

notional amount of the swaps as appropriate to achieve the

risk management objective. Nokia enters into interest rate

swaps that have similar critical terms to the hedged item,

such as reference rate, reset dates, payment dates,

maturities and notional amount and hence Nokia expects that

there will be no significant ineffectiveness. Nokia has not

entered into interest rate swaps where it would be paying

fixed rates.

Nokia’s borrowings are carried at amortized cost. Changes in

the fair value of derivatives designated and qualifying as fair

value hedges, together with any changes in the fair value of

hedged liabilities attributable to the hedged risk, are recorded

in financial income and expenses in the income statement.

Nokia separates the foreign currency basis spread from cross-

currency swaps and excludes it from the hedged risk as cost

of hedging that is initially recognized and subsequently

measured at fair value and recorded in the cost of hedging

reserve through other comprehensive income. If a hedge

relationship no longer meets the criteria for hedge

accounting, hedge accounting ceases, the cost of hedging

recorded in the cost of hedging reserve is immediately

expensed and any fair value adjustments made to the carrying

amount of the hedged item while the hedge was effective are

recognized in financial income and expenses in the income

statement based on the effective interest method.

Hedges of net investments in foreign operations

Nokia applies hedge accounting for its foreign currency hedging

of selected net investments. The hedged item can be an amount

equal to or less than the carrying amount of the net assets of

the foreign operation in the statement of financial position. The

risk management strategy is to protect the euro counter value

of the portion of this exposure expected to materialize as non-

euro cash repatriation in the foreseeable future.

For qualifying foreign exchange forwards, foreign exchange

options and option strategies, the change in fair value that

reflects the change in spot exchange rates is recognized in

translation differences in shareholders’ equity (refer to Note 5.1.

Equity). The changes in the forward element of foreign exchange

forwards as well as the changes in the time value of options

(collectively known as the “cost of hedging”) is recognized in the

cost of hedging reserve through other comprehensive income.

The cost of hedging at the date of designation of the foreign

exchange forward or option contract as a hedging instrument is

amortized to financial income and expenses in the income

statement over the duration of the contract. Hence, in each

reporting period, the change in fair value of the forward element

of the foreign exchange forward contract or the time value of the

option contract is recorded in the cost of hedging reserve through

other comprehensive income, while the amortization amount is

reclassified from the cost of hedging reserve to profit or loss.

The cumulative amount or proportionate share of changes in

the fair value of qualifying hedges deferred in translation

differences is recognized as gain or loss on disposal of all or part

of a foreign subsidiary.

Derivatives not designated in hedge accounting

relationships carried at fair value through profit and loss

For derivatives not designated under hedge accounting, but

hedging identifiable forecast exposures such as anticipated

foreign currency denominated sales and purchases, the gains

and losses are recognized in other operating income and

expenses in the income statement. The gains and losses on

all other derivatives not designated under hedge accounting

are recognized in financial income and expenses.

Embedded derivatives included in contracts are identified and

monitored by Nokia. For host contracts that are not financial

assets containing embedded derivatives that are not closely

related, the embedded derivatives are separated and

measured at fair value at each reporting date with changes in

fair value recognized in financial income and expenses in the

income statement. For host contracts that are financial

assets containing embedded derivatives, the whole contract

is measured at fair value at each reporting date with changes

in fair value recognized in financial income and expenses in

the income statement.

Hedge accounting

Hedge accounting

Nokia applies hedge accounting on certain foreign exchange

forward contracts, options or option strategies, and interest

rate derivatives. Qualifying options and option strategies

have zero net premium, or a net premium paid. For option

structures, the critical terms of the purchased and written

options are the same and the notional amount of the written

option component is not greater than that of the purchased

option.

In the fair valuation of foreign exchange forward contracts,

Nokia separates the forward element and considers it to be

the cost of hedging for foreign exchange forward contracts.

In the fair valuation of foreign exchange option contracts,

Nokia separates the time value and considers it to be the cost

of hedging for foreign exchange option contracts. In the fair

valuation of cross-currency swaps, Nokia separates the

foreign currency basis spread and considers it to be the cost

of hedging for cross-currency swaps.

Hedge effectiveness is assessed at inception and

subsequently on a quarterly basis during the hedge

relationship to ensure that an economic relationship exists.

As Nokia only enters in hedge relationships where the critical

terms match, the assessment of effectiveness is done on a

qualitative basis with no significant ineffectiveness expected.

Presentation in the statement of cash flows

The cash flows of a hedge are classified as cash flows from

operating activities in cases where the underlying hedged items

relate to Nokia’s operating activities. When a derivative contract

is accounted for as a hedge of an identifiable position relating to

financing or investing activities, the cash flows of the contract

are classified in the same way as the cash flows of the position

being hedged. Cash flows of derivatives used in hedging the

foreign exchange risk of Nokia’s cash position are presented in

cash flows from investing activities.

Cash flow hedges: hedging of forecast foreign currency

denominated sales and purchases

Nokia applies cash flow hedge accounting primarily to foreign

exchange exposure that arises from highly probable forecast

operative business transactions. The risk management strategy

is to hedge material net exposures (identified standard net sales

exposure minus identified standard costs exposure) by using

foreign exchange forwards and foreign exchange options in a

layered hedging style that follows defined hedging level ranges

and hedge maturities in quarterly time buckets. The hedged item

must be highly probable and present an exposure to variations in

cash flows that could ultimately affect profit or loss.

For qualifying foreign exchange forwards and foreign exchange

options, the change in fair value that reflects the change in spot

exchange rates on a discounted basis is recognized in hedging

reserve through other comprehensive income (refer to Note 5.1.

Equity). The changes in the forward element of the foreign

exchange forwards and the time value of the options that relate

to hedged items are deferred in the cost of hedging reserve

through other comprehensive income (refer to Note 5.1. Equity)

and are subsequently accounted for in the same way as the spot

element or intrinsic value.

In each quarter, Nokia evaluates whether the forecast sales and

purchases are still expected to occur. If a portion of the hedged

cash flow is no longer expected to occur, the hedge accounting

criteria are no longer met and all related deferred gains or losses

are derecognized from fair value and other reserves and

recognized in other operating income and expenses in the

income statement.

If the hedged cash flow ceases to be highly probable, but is

still expected to occur, accumulated gains and losses remain

in fair value and other reserves until the hedged cash flow

affects profit or loss.

Nokia’s risk management objective is to hedge forecast cash

flows until the related revenue has been recognized. Each

hedge relationship is discontinued during the quarter when

the hedge matures, which is also the quarter that it had been

designated to hedge. At this point, the accumulated gain or

loss of cash flow hedges is reclassified to other operating

income and expenses in the income statement. In cases

where the forecast amount of revenue is not recognized

during a quarter, the full accumulated gain or loss of cash

flow hedges designated for said quarter is still reclassified

and the portion related to forecast revenue that was not

recognized is disclosed as hedge ineffectiveness.

As cash flow hedges primarily mature in the same quarter as

the hedged item, there is no significant ineffectiveness

resulting from the time value of money. Nokia will validate the

magnitude of the impact of discounting related to the

amount of gain or loss recognized in fair value and other

reserves on a quarterly basis.

Cash flow and fair value hedges: hedging of foreign

exchange risk of future interest cash flows

Nokia also applies cash flow hedging to future interest cash

flows in foreign currency related to issued bonds. These

future interest cash flows are hedged with cross-currency

swaps that have been bifurcated and designated partly as fair

value hedges (see Fair value hedges: hedging of interest rate

exposure below) to hedge both the foreign exchange and

interest rate benchmark risk component of the issued bond,

and partly as cash flow hedges to hedge the foreign exchange

risk related to the remaining portion of interest cash flows on

the issued bond. The accumulated gain or loss for the part of

these cross-currency swaps designated as cash flow hedges

is initially recorded in hedging reserve through other

comprehensive income and reclassified to profit or loss at

the time when the related interest cash flows are settled.

Fair value hedges: hedging of interest rate exposure

Nokia applies fair value hedge accounting to reduce exposure

to fair value fluctuations of interest-bearing liabilities due to

changes in interest rates and foreign exchange rates. Nokia

uses interest rate swaps and cross-currency swaps aligned

with the hedged items to hedge interest rate risk and

associated foreign exchange risk.

Nokia has entered into long-term borrowings mainly at fixed

rates and has swapped most of them into floating rates in

line with a defined target interest profile. Nokia aims to

mitigate the adverse impacts from interest rate fluctuations

by continuously managing net interest exposure resulting

from financial assets and liabilities by setting appropriate risk

management benchmarks and risk limits. The hedged item is

identified as a proportion of the outstanding loans up to the

notional amount of the swaps as appropriate to achieve the

risk management objective. Nokia enters into interest rate

swaps that have similar critical terms to the hedged item,

such as reference rate, reset dates, payment dates,

maturities and notional amount and hence Nokia expects that

there will be no significant ineffectiveness. Nokia has not

entered into interest rate swaps where it would be paying

fixed rates.

Nokia’s borrowings are carried at amortized cost. Changes in

the fair value of derivatives designated and qualifying as fair

value hedges, together with any changes in the fair value of

hedged liabilities attributable to the hedged risk, are recorded

in financial income and expenses in the income statement.

Nokia separates the foreign currency basis spread from cross-

currency swaps and excludes it from the hedged risk as cost

of hedging that is initially recognized and subsequently

measured at fair value and recorded in the cost of hedging

reserve through other comprehensive income. If a hedge

relationship no longer meets the criteria for hedge

accounting, hedge accounting ceases, the cost of hedging

recorded in the cost of hedging reserve is immediately

expensed and any fair value adjustments made to the carrying

amount of the hedged item while the hedge was effective are

recognized in financial income and expenses in the income

statement based on the effective interest method.

Hedges of net investments in foreign operations

Nokia applies hedge accounting for its foreign currency hedging

of selected net investments. The hedged item can be an amount

equal to or less than the carrying amount of the net assets of

the foreign operation in the statement of financial position. The

risk management strategy is to protect the euro counter value

of the portion of this exposure expected to materialize as non-

euro cash repatriation in the foreseeable future.

For qualifying foreign exchange forwards, foreign exchange

options and option strategies, the change in fair value that

reflects the change in spot exchange rates is recognized in

translation differences in shareholders’ equity (refer to Note 5.1.

Equity). The changes in the forward element of foreign exchange

forwards as well as the changes in the time value of options

(collectively known as the “cost of hedging”) is recognized in the

cost of hedging reserve through other comprehensive income.

The cost of hedging at the date of designation of the foreign

exchange forward or option contract as a hedging instrument is

amortized to financial income and expenses in the income

statement over the duration of the contract. Hence, in each

reporting period, the change in fair value of the forward element

of the foreign exchange forward contract or the time value of the

option contract is recorded in the cost of hedging reserve through

other comprehensive income, while the amortization amount is

reclassified from the cost of hedging reserve to profit or loss.

The cumulative amount or proportionate share of changes in

the fair value of qualifying hedges deferred in translation

differences is recognized as gain or loss on disposal of all or part

of a foreign subsidiary.

Derivatives not designated in hedge accounting

relationships carried at fair value through profit and loss

For derivatives not designated under hedge accounting, but

hedging identifiable forecast exposures such as anticipated

foreign currency denominated sales and purchases, the gains

and losses are recognized in other operating income and

expenses in the income statement. The gains and losses on

all other derivatives not designated under hedge accounting

are recognized in financial income and expenses.

Embedded derivatives included in contracts are identified and

monitored by Nokia. For host contracts that are not financial

assets containing embedded derivatives that are not closely

related, the embedded derivatives are separated and

measured at fair value at each reporting date with changes in

fair value recognized in financial income and expenses in the

income statement. For host contracts that are financial

assets containing embedded derivatives, the whole contract

is measured at fair value at each reporting date with changes

in fair value recognized in financial income and expenses in

the income statement.

Business combinations

Accounting policies

Business combinations are accounted for using the acquisition method. At the acquisition

date the consideration transferred, comprising the sum of assets transferred, liabilities

assumed and equity interests issued, is generally measured at fair value. The consideration

transferred is allocated to the separately identifiable assets acquired and liabilities assumed,

including assets and liabilities that were not recognized on the statement of financial position

of the acquiree, such as certain intangible assets or contingent liabilities. The total amount of

consideration transferred and non-controlling interests in the acquiree, if any, exceeding the

net of all identifiable assets acquired and liabilities assumed is recognized as goodwill. The

acquisition-related costs are recognized as expenses in the periods incurred, except for the

costs related to issuing debt or equity securities. The results of businesses acquired are

consolidated in the results of Nokia from the acquisition date.