2012 Annual Report - ZTE

ANNUAL REPORT 2012Notes to Financial Statements(Prepared under Hong Kong Financial Reporting Standards)31 December 20122.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Foreign currencies (continued)For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries aretranslated into Renminbi at the exchange rates ruling at the dates of the cash flows. Frequently recurringcash flows of overseas subsidiaries which arise throughout the year are translated into Renminbi at theweighted average exchange rates for the year.3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATESThe preparation of the Group’s financial statements requires management to make judgements, estimatesand assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and theiraccompanying disclosure, and the disclosure of contingent liabilities. Uncertainty about these assumptionsand estimates could result in outcomes that could require a material adjustment to the carrying amounts ofthe assets or liabilities affected in the future.JudgementsIn the process of applying the Group’s accounting policies, management has made the following judgements,apart from those involving estimations, which have the most significant effect on the amounts recognisedin the financial statements:Revenue recognitionThe Group’s material revenue streams are the result of a wide range of activities, from custom design andinstallation over a period of time to a single delivery of equipment to a customer. The Group’s networkingsolutions also cover a broad range of technologies and are offered on a global basis. As a result, the Group’srevenue recognition policies can differ depending on the level of customisation within the solution and thecontractual terms with the customer. Newer technologies within one of the Group’s reporting segmentsmay also have different revenue recognition policies, depending on, among other factors, the specificperformance and acceptance criteria within the applicable contracts. Therefore, management must usesignificant judgement in determining how to apply the current accounting standards and interpretations, notonly based on the networking solutions, but also within networking solutions based on reviewing the levelof customisation and contractual terms with the customer. As a result, the Group’s revenues may fluctuatefrom period to period based on the mix of solutions sold and the geographic regions in which they are sold.When a customer arrangement involves multiple deliverables which are governed by more than oneauthoritative standard, the Group evaluates all deliverables to determine whether they represent separateunits of accounting based on the following criteria:• whether the delivered item has value to the customer on a stand-alone basis;• whether the contract that includes a general right of return relative to the delivered item, delivery orperformance of the undelivered item(s) is considered probable and is substantially in the Group’s control.355