General

The consolidated financial statements comprise the parent company TeliaSonera AB and all entities over which TeliaSonera has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. TeliaSonera's consolidated financial statements are based on accounts prepared by all controlled entities as of December 31, and have been prepared using the purchase method. According to this method the cost of a business combination is the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree plus any costs directly attributable to the business combination. Identifiable assets acquired, and liabilities and contingent liabilities assumed are initially measured at fair value. Any excess of the cost of acquisition over the fair value of net assets acquired is recognized as goodwill.

Values for entities acquired or divested during the year are included in the consolidated income statement from the date on which control is transferred to TeliaSonera or excluded from the date on which control ceases.

Intra-group sales and other transactions have been eliminated in the consolidated financial statements. Profits and losses resulting from intra-group transactions are eliminated unless a loss indicates impairment.

Minority interests

Transactions with minority interests are treated as transactions with non-related parties. Disposals to minority interests result in capital gains or losses which are recognized in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the Group's carrying value of net assets of the subsidiary. Commitments to purchase minority interests and put options granted to minority shareholders (including any subsequent capital contributions from minority shareholders) are recognized as contingent consideration. Where the amount of the commitment exceeds the amount of the minority interest, the difference is recorded as goodwill. Any changes in the fair value of put options granted in connection with business combinations are recognized as an adjustment of goodwill, while changes in fair value of put options granted to minority shareholders in existing subsidiaries are recognized in the income statement.

Foreign currency translation and inflation adjustments

Items included in the separate financial statements of a Group entity are measured in the entity's functional currency, being the currency of the primary economic environment in which the entity operates, normally the local currency.

The consolidated financial statements are presented in Swedish kronor (SEK), which is the functional currency of the parent company. When income statements and balance sheets of foreign operations (subsidiaries, associated companies and joint ventures, and branch offices) are translated into SEK, the exchange rate prevailing on the balance sheet date (closing rate) is used to translate all items in the balance sheets except for the equity components, which are converted at the historical rate. Income statement items are translated using the average rate for that period. Differences resulting from translation do not affect income but are recognized directly in equity. When a foreign operation is sold, any related cumulative exchange rate difference is recognized in the income statement as part of the gain or loss on the sale.

When the functional currency for a subsidiary, an associated company or a joint venture is the currency of a hyperinflationary economy, the reported non-monetary assets and liabilities, and equity are restated in terms of the measuring unit current at the balance sheet date. The restated financial statements are translated into SEK at the closing rate. The restating effects are recorded as financial income or expense and in income from associated companies and joint ventures, respectively. Currently, no subsidiary, associated company or joint venture operates in a hyperinflationary economy.

Goodwill and fair value adjustments arising from the acquisition of foreign entities are treated as assets and liabilities of the foreign entity.

Associated companies and joint ventures

Entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20 percent and 50 percent of the voting rights, are recorded as associated companies. Entities over which the Group has joint control by virtue of a contractual arrangement are recorded as joint ventures.

Holdings in associated companies and joint ventures are included in the consolidated income statement and balance sheet according to the equity method and are initially recognized at cost. In the income statement, the Group's share of net income in associated companies and joint ventures is included in operating income because the operations of these companies are related to telecommunications and it is the Group's strategy to capitalize on industry know-how by means of investing in partly owned operations. The share of net income is based on the company's most recent accounts, adjusted for any discrepancies in accounting principles, and with estimated adjustments for significant events and transactions up to TeliaSonera's close of books.

The income statement item Income from associated companies and joint ventures also includes amortization of fair value adjustments and other consolidation adjustments made upon the acquisition of associated companies and joint ventures as well as any subsequent impairment losses on goodwill and other intangible assets, and capital gains and losses on divestitures of stakes in such companies.

TeliaSonera's share of any gains or losses resulting from transactions with associated companies and joint ventures are eliminated.

Negative equity participations in associated companies and joint ventures are recognized only for entities for which the Group has contractual obligations to contribute additional capital and are then recorded as Other provisions.

Segment reporting

The Group's operations are managed and reported by business area (BA). Segments are consolidated based on the same accounting principles as for the Group as a whole, except for loss-making customer contracts within one business area which are not provided for if a contract is profitable on Group level. When significant operations are transferred between segments, comparative period figures are reclassified.