Kazia Therapeutics Annual Reports 2023

81 Kazia Theraputics Limited Annual Report 2023 Chairman and CEO’s Letter Key Milestones Introduction to Kazia’s CEO Pipeline Review Environment, Society and Governance Financial Reports 3 • Assessing the adequacy of the relevant disclosures in the financial statements. Valuation of contingent consideration Key audit matter How the matter was addressed in our audit The group has material liabilities in relation to the paxalisib and EVT801 intangible assets acquired. 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. As disclosed in Note 18, the total contingent consideration in respect of paxalisib is $1,403,692 (2022: $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. As disclosed in Note 18, the total contingent consideration in respect of EVT801 is $5,467,091 ($7,800,249). The contingent consideration is a key audit matter due to the materiality of the amounts in question as well as the high subjectivity and management judgement involved in calculating the contingent consideration as disclosed in Note 3. To address the key audit matter, our procedures included, amongst others:  Obtaining an understanding of and evaluating managements process and controls relating to the estimation of the liability;  Obtaining and critically assessing management’s position paper and calculation of the contingent consideration;  Holding discussions with management to understand managements’ key assumptions in arriving at the timing and probability of milestone payments as well as the discount rate applied;  Critically evaluating the assumptions applied against publicly available information and published clinical trial updates and results;  Evaluating the competence and, capabilities and objectivities of management experts involved in the estimation of the liability;  Engaging BDO Corporate Finance to assess the reasonability of the discount rates applied by management in determining the contingent consideration;  Assessing the mathematical accuracy and methodology of managements’ calculation;  Assessing the impact of the EVT 801 prior period error on the current and prior period financial statements;  Assessing the disclosure of the prior period error and accuracy of the classification of the contingent