Kazia Therapeutics Annual Report 2021

2021 AT A GLANCE CHAIRMAN’S LETTER CEO’S REPORT KEY MILESTONES PIPELINE REVIEW PARTNER FOR SUCCESS WORK WITH THE BEST #2 IN THE KAZIA STORY FINANCIAL REPORTS Kazia Therapeutics Limited Annual Report 2021 67 KAZIA THERAPEUTICS LIMITED Independent auditor’s report to the members of Kazia Therapeutics Limited Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter How our audit addressed the key audit matter Intangible asset impairment (Note 2, Note 3 & Note 12) The Group carries in its statement of financial position intangible assets relating to:  the Licensing Agreement which grants the Group the right to develop the paxalisib molecule; and  the Licensing Agreement which grants the Group the right to develop the EVT801 molecule. The paxalisib Licensing Agreement has a carrying value of $11,325,795 and the EVT801 Licensing Agreement has a carrying value of $10,676,798. These assets are being amortised over the remaining life of the underlying patents at acquisition date, being 15 years and 12.5 years respectively. AASB 136 Impairment of Assets requires an entity to assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any indication exists, the entity shall estimate the recoverable amount of the asset. This is a key audit matter due to the materiality of amounts in question and the high degree of management judgement required in assessing whether there are indicators of impairment. Our procedures included, amongst others:  obtaining an understanding of and evaluating management’s process and controls related to the assessment of the existence of impairment indicators;  reviewing and assessing management’s assessment of the existence of any impairment indicators, including making enquiries of management’s experts ;  considering each of the internal and external factors outlined by AASB 136 and assessing whether any indicators of impairment are present;  reviewing management’s assessment of the potential impact of COVID-19 on the performance of the assets; and  assessing the adequacy of the relevant disclosures in the financial statements. Asset acquisition accounting (Note 2, Note 3, Note 12 and Note 15) On 19 April 2021 the Group entered into a worldwide exclusive licensing agreement with Evotec SE, for the oncology drug candidate EVT801. The transaction has been accounted for as an asset acquisition and as noted in note 1 5 , the agreement contains contingent payments dependent on the achievement of contracted milestones. Management has exercised judgement in determining the probability of achieving such milestones and the timing of each. The estimated contingent consideration at 30 June 2021 is $11,075,949. This is a key audit matter due to the materiality of amounts in question and the high degree of management judgement required. Our procedures included, amongst others:  obtaining and reviewing the license agreement to understand the terms and conditions of the transaction;  reviewing management’s assessment of the proposed accounting treatment of the transaction;  agreeing key terms of agreements utilised in management’s assessment;  challenging key assumptions made by management in its assessment of accounting treatment;  assessing management’s method of amortisa tion;  making enquiries of management’s experts; and  assessing the adequacy of the relevant disclosures within the financial statements. 6 7