N O TE 4 C ritical e s timat e s a n d judgments The prepar ation of fnancial reports requires the Boar d of Director s and Group M ana g ement to mak e es timates and jud gments usin g cert ain assumptions Es timates and jud gments will impact both the s t atement of income and the balance sheet as w ell as disclosures such as contin g ent liabilities Actual results ma y difer from these es timates and jud gments under diferent assumptions and conditions Acquisition of subsidiaries oper ations and contin g ent consider ations includin g acquisition related option liabilities The v aluation of identifable assets and liabilities in connection with the acquisition of subsidiaries or oper ations in v olv es that items in the acquired compan y s balance sheet as w ell as items that ha v e not been recogniz ed in the acquired compan y s balance sheet such as cus tomer relations should be v alued at fair v alue In normal circums t ances as quoted mark et prices are not a v ailable for the assets and liabilities that are to be v alued diferent v alu ation methods ha v e to be used These v aluation methods are based on a number of assumptions F or a per sonnel intensiv e compan y lik e Securit as emplo y ee related items such as accrued salaries accrued social benefts holida y pa y lon g term emplo y ee benefts and pos t emplo yment benefts are signifcant items in the balance sheet that can be difcult to v alue Accounts receiv able is another e xample of a signifcant balance sheet item where it can be difcult to v alue the amount of bad debt and thus to what e xtent the y will be collected Other items that can be difcult both to iden tif y as w ell as to v alue are contin g ent liabilities that could ha v e arisen in the acquired compan y in connection with for e xample litigations The v aluation of identifable assets and liabilities is also dependent on the accountin g en vironment that the acquired compan y oper ations has been activ e in This is true for e xample for the basis of prepar ation for the fnancial report in g and consequently the e xtent of adjus tments that are necessar y in or der to follo w the Group s accountin g principles the frequenc y for which closin g s ha v e been prepared and the a v ailabilit y of diferent t ypes of dat a that can be necessar y in or der to v alue identifable assets and liabilities All balance sheet items are thus subject to es timates and jud gments This also means that the initial accountin g ma y ha v e to be pro visionally determined and subsequently adjus ted All acquisition calculations are fnaliz ed no later than one y ear after the acquisition is made Considerin g the abo v e description Securit as has chosen not to s t ate the reasons to wh y the initial accountin g of the business combination is pro visional nor which assets and liabilities for which the initial accountin g is pro visional for each individual business combination unless it is a material adjus tment All pa yments to acquire a subsidiar y oper ation are recor ded at fair v alue at the acquisition date includin g debt related to contin g ent consider ations and acquisition related option liabilities deferred consider ations This debt is measured at fair v alue in subsequent periods with remeasurement throug h the s t atement of income The fnal outcome of deferred consider ations often depends on one or more e v ents which only will be confrmed b y a future de v elopment such as the future proft abilit y de v elopment for an a greed period The fnal outcome can therefore either be lo w er or hig her than the initially recogniz ed amount Short term deferred consider ations which amount to M SEK 2247 1667 and 977 and is included in other cur rent liabilities note 34 and lon g term deferred consider ations which amount to M SEK 3195 4394 and 1998 and is included in other lon g term liabili ties note 30 are thus subject to critical es timates and jud gments f urther information re gar din g acquisitions is pro vided in note 16 and re gar din g re v aluation of deferred consider ations in note 11 Impairment tes tin g of g oodwill other acquisition related int an g ible assets and shares in associated companies In connection with the impairment tes tin g of g oodwill other acquisition related int an g ible assets and shares in associated companies the book v alue is compared with the reco v er able v alue The reco v er able v alue is determined b y the hig her of an asset s net realizable v alue and its v alue in use Since under normal circums t ances no quoted mark et prices are a v ailable to assess an asset s net realizable v alue the book v alue is normally compared with the v alue in use The calculation of the v alue in use is based on assumptions and jud gments The mos t import ant assumptions are the or ganic sales gro wth the de v elopment of the oper atin g mar g in the oper atin g w orkin g capit al requirements and the rele v ant W A C C which is used to discount future cash fo ws All in all this means that the v aluation of the balance sheet items g oodwill which amounts to M SEK 14 2754 14 7274 and 13 3388 acquisition related int an g ible assets which amounts to M SEK 1 5019 1 5741 and 1 0965 and shares in associated companies which amounts to M SEK 1080 1082 and 1256 are subject to critical es timates and jud gments A sensitivit y analysis re gar din g the or ganic sales gro wth the oper atin g mar g in and the W A C C is pro vided in note 16 V aluation of accounts receiv able and the pro vision for bad debt losses Accounts receiv able which amounts to M SEK 10 4901 10 9650 and 9 7241 is one of the mos t signifcant balance sheet items Accounts receiv able are accounted for at nominal v alue net after pro visions for probable bad debt The pro vision for bad debt losses which amounts to M SEK 4746 4193 and 3447 is thus subject to critical es timates and jud gments As s t ated abo v e accounts receiv able is often an import ant item in relation to the acquisition of subsidiaries oper ations f urther information re gar din g the credit risk in accounts receiv able is pro vided in note 6 Information re gar din g the de v elopment of the pro vision for bad debt losses durin g the y ear is pro vided in note 25 Actuarial calculations re gar din g emplo y ee benefts such as pensions and medical benefts Emplo y ee benefts are normally an area where es timates and jud gments are not critical Ho w e v er for defned beneft plans relatin g to benefts particularly for pensions and medical benefts and where the pa yment to the emplo y ee is se v er al y ear s into the future actuarial calculations are required These calculations are based on assumptions re gar din g economic v ariables such as the discount r ate the e xpected return on plan assets salar y increases infation r ate pension increases and the infation r ate for medical benefts but also on demogr aphic v ariables such as the e xpected life span All in all the balance sheet item pro visions for pensions and similar commitments which amounts to M SEK 1 4706 1 4535 and 1 1512 is subject to critical es timates and jud gments The Group s opinion is that the mos t import ant assumptions are the discount r ate the infation r ate and the e xpected life span A sensitivit y analysis re gar din g these three v ariables is pro vided in note 31 Actuarial calculations re gar din g claims reser v es and timin g of outfo ws The Group is e xposed to v arious t ypes of risks in the da y toda y runnin g of the business The oper ational risks can result in the need to recogniz e reser v es for dama g es resultin g from propert y claims per sonal in juries as w ell as w ork er s compensation claims relatin g to the Group s emplo y ees Claims reser v es are calculated based on a combination of case reser v es and incurred but not reported reser v es Actuarial calculations are per formed on a quarterly basis to assess the adequac y of the reser v es based on open claims and his torical dat a for incurred but not reported claims Actuarial calculations are based on se v er al assumptions Claims reser v es comprise a lar g e number of individual insur ance cases where some cases are com pensated with a lumpsum pa yment and other s are paid o v er a lon g er period of time It is thus not possible to disclose an y det ailed information re gar din g the timin g of outfo ws from claims reser v es All in all this means that the balance sheet items short term liabilit y insur ancerelated claims reser v es which amounts to M SEK 5862 6628 and 5262 and is included in short term pro visions note 35 and liabilit y insur ancerelated claims reser v es which amounts to M SEK 3848 4105 and 4613 and is included in other lon g term pro visions note 32 are subject to critical es timates and jud gments 84 Annual R eport Notes and comments to the consolidated fnancial s t atements Securit as Annual R eport 2012