78 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KAZIA THERAPEUTICS LIMITED FINANCIAL REPORT Grant Thornton Australia Limited Contingent consideration (Note 2, 3, 16) In 2017, the consolidated entity acquired the rights to develop and commercialise paxalisib, as part of a business combination. As part of that transaction, the Company engaged an expert to perform purchase price accounting, determine the fair value of the intangible asset acquired in the business combination, and estimate the value of contingent consideration based on the likelihood of achieving certain milestones. The total contingent consideration in respect of paxalisib is $1,167,536. In 2021, Kazia entered into a worldwide exclusive licensing agreement with Evotec SE to develop the drug candidate EVT801. As part of this agreement, contingent fees are payable on achieving certain milestones. The total contingent consideration in respect of EVT801 is $8,347,245. The contingent consideration is a key audit matter due to the high subjectivity and management judgement involved in calculating the contingent consideration and the materiality of the amounts in question. Our procedures included, amongst others; • obtaining an understanding of and evaluating management’s process and controls related to the estimation of the liability; • evaluating the competence, capabilities and objectivity of management's experts; • obtaining management’s calculation of the contingent consideration liability and assessing the key inputs and assumptions made by management’s experts; • where management’s assumptions are applied to other critical accounting estimates, such as the valuation of intangible assets described above, assessing whether those assumptions have been applied consistently across estimates; • assessing the accuracy of the calculations and evaluating the approach and methodology for consistency; • evaluating the appropriate classification of the liabilities between current and non-current; and • assessing the adequacy of the relevant disclosures in the financial statements. Information other than the financial report and auditor’s report thereon The Directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2022, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
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