2. MATERIAL ACCOUNTING POLICY INFORMATION (CONTINUED) income taxes and discontinued operations. The standard introduces two mandatory sub-totals in the statement: ‘Operating profit’ and ‘Profit before financing and income taxes’. There are also new disclosure requirements for ‘management-defined performance measures’, such as earnings before interest, taxes, depreciation and amortisation (‘EBITDA’) or ‘adjusted profit’. The standard provides enhanced guidance on grouping of information (aggregation and disaggregation), including whether to present this information in the primary financial statements or in the notes. The consolidated entity will adopt this standard from 1 January 2027 and it is expected that there will be a significant change to the layout of the statement of profit or loss and other comprehensive income. Comparatives Where deemed necessary, the comparatives have been reclassified to achieve consistency with the current financial year. This includes prior year royalty receivables of $12.8 million which have been reclassified as contract assets. Principles of Consolidation Subsidiaries Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. When necessary, amounts reported by subsidiaries have been adjusted to conform with the group’s accounting policies. Foreign Currency Translation Functional and Presentation Currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operation (the functional currency). On 1 January 2024, the Group changed its functional currency from Australian dollars to US dollars. At 31 December 2024, the presentation currency of the Group is Australian dollars and the functional currency is US dollars. Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at financial year-end exchange rates are recognised in profit or loss. Foreign operations/translation to presentation currency The results and financial position of operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows: – assets and liabilities are translated using the closing rate at the reporting date – revenues and expenses are translated using the average exchange rates, which approximate the rates at the dates of the transactions, for the period – all resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity. Exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to a separate component of equity. The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of. Revenue NZ IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for licensing rights and intellectual property access to a customer. The five-step process is as follows: – identify the contract(s) with a customer; – identify the performance obligations in the contract(s); – determine the transaction price; – allocate the transaction price to the performance obligations in the contract(s); and – recognise revenue when (or as) the performance obligations are satisfied. Licence revenue Licence revenues in connection with licensing of the Group’s intellectual property to customers are recognised as a right to use the entity’s intellectual property as it exists at the point in time at which the licence is granted. This is because the contracts for the licence of intellectual property are distinct and do not require, nor does the customer NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Neuren Pharmaceuticals Limited Annual Report 2024 29
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