The Board of Directors and management have discussed the development, the choice of and disclosures relating to the Group’s important accounting policies and estimates, and the application of these policies and estimates. Certain critical accounting estimates performed in conjunction with application of the Group’s accounting policies are described below.
Test for impairment of goodwill
Each year the Group investigates if any impairment of goodwill has occurred. The recoverable value of the cash-generating units is determined through a calculation of the value in use. This calculation is based on the strategic plan of the business in question and expected future cash flows for the operation. The discount factor used for present value calculations of expected future cash flows is the weighted average cost of capital (WACC). The year’s review has demonstrated that there is no need for an impairment charge.
Deferred taxes
The value of tax loss carryforwards and other deferred tax claims/liabilities is taken into consideration to the extent that it is deemed probable that it will be possible to utilise them in the future.
Exposure to foreign currencies
An analysis of the exposure to foreign currencies and the risks associated with changes in foreign exchange rates is provided in Note 41.
Pension assumptions
Pension assumptions are an important element of the actuarial methods used to measure pension obligations and they can have an effect on the reported pension liability and the annual cost of pensions. Two critical assumptions − the discount rate and expected return on managed assets − are important for measuring the year’s pension cost as well as the present value of the defined benefit pension obligations. These assumptions are reviewed at least once per year for each plan in each country. Other assumptions may relate to demographic factors, such as retirement age, mortality and personnel turnover are not reviewed as often. The current outcome often differs from the actuarial assumptions for economic and other reasons. The discount rate makes it possible to measure future cash flows at present value at the time of measurement. This interest rate should correspond to the return on investment grade corporate bonds, or government bonds, if a functioning market for corporate bonds does not exist. A lowered discount rate increases the present value of the pension liability and the annual cost.
