NOTE 20
ACCOUNTING ESTIMATES AND JUDGMENTS

KEY SOURCES OF ESTIMATION AND UNCERTAINTY:

INCOME TAXES Future income tax assets and liabilities are computed based on differences between the carrying amounts of assets and liabilities on the balance sheet date and their corresponding tax values, using the enacted or substantially enacted, as applicable, income tax rates at each balance sheet date. Future income tax assets also result from unused income tax losses carried forward and other deductions. The determination of the Group to utilize tax losses carried forward to offset future income tax payable requires management to exercise judgment and make assumptions about future performance of the Company. Management is required to assess whether the Group is “more likely than not” to benefit from these tax losses. Changes in economic conditions or changes in technological feasibility could result in revisions to the estimates of the benefits to be realized or the timing of utilization of losses.

ASSET IMPAIRMENT Asset impairment involves various estimates and assumptions as follows:

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining what cash flow is directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any.

Goodwill and identified intangible assets are tested for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business and/or economic climate. Determining whether an impairment has occurred requires valuation of the respective reporting unit, which is estimated using the discounted cash flow method.

OTHER LOSS CONTINGENCIES Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often over long time periods. Estimating probable losses requires analysis of multiple forecasts that often depend on judgment about potential actions by third parties.

TRADE DEBTORS The aged debt profile of trade debtors is reviewed on a regular basis to ensure that the trade debtor balances are collectible and follow-up actions are promptly carried out if the agreed credit periods have been exceeded. However, from time to time, the Group may experience delays in collection. When recoverability of trade debtors balances is called into doubt, specific provisions for bad and doubtful debts are made based on credit status of the customers, the age analysis of trade receivable balances and write-off history. Certain receivables may be initially identified as collectible, yet subsequently become uncollectible and result in a subsequent write-off of the related receivable to the income statement. Changes in the collectability of trade receivables for which provisions are not made affect our result of operations.

SHARE OPTIONS Estimated volatility used in the Black-Scholes calculation of the value of Shared-based payments in accordance with IFRS 2, is calculated based on historical share price movements adjusted for specific events. The Sharebased payments costs are sensitive to adjustments in volatility and can increase or decrease significantly with small adjustments in the volatility used in the calculations.

DEPRECIATION OF INTANGIBLE ASSETS Estimated economic life of intangible assets is based on estimates of use of technology and know-how developed historically. Future technological developments might have a significant impact on the estimated economic life of the intangible assets.


CRITICAL ACCOUNTING JUDGMENTS IN APPLYING THE GROUP’S ACCOUNTING POLICIES

Certain critical accounting judgments in applying the Group's accounting polices are described below.

TERMINATION OF DEFINED BENEFIT SCHEME The defined benefit scheme in TANDBERG Telecom AS was terminated with effect from 1 January 2006. Even though this is a transaction after the balance sheet date, management has defined this as a 2005 transaction and the effects from the termination has been included in the financial statements for 2005.

SHARE OPTIONS Tax benefits granted to TANDBERG Inc from share-options exercised by its employees have been accounted for as reduced salary costs in the Group accounts, as this has been treated as a transaction similar to grants from Governments.

LOSSES ON OWN SHARES USED IN RELATION TO SHARE-OPTION PROGRAM Losses on own shares sold to employees in relation to the share-option program has been treated as tax deductible expenses, as the loss has been considered to be an estimate of the services granted from the employees to the Group.

USD AS FUNCTIONAL CURRENCY FOR THE GROUP The Group accounts are presented in USD as management considers USD as being the functional currency for the Group as a majority of the operations of the Group are in USD.