Company: LCTX
Filing Date: 2025-03-10
Form Type: 10-K
Source: 0000950170-25-036309
Chunk: 154

Company: Lineage Cell Therapeutics, Inc.
Filing Date: 2025-03-10
Form: 10-K
Item: Item 1B
Chunk 154
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 accounts or disclosures that are material to the (consolidated) financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the (consolidated) financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition based on a cost input measure of progress

As described in Note 3 to the consolidated financial statements, the Company recorded deferred revenue of $20.6 million as of December 31, 2024 and revenue of $8.1 million for the year ended December 31, 2024 from a collaboration agreement.  The Company concluded the grant of licenses for the Company’s technology or programs, research and development services, and services or obligations in connection with participation in research or steering committees represent a combined performance obligation for which the Company recognizes collaboration revenues 

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as the services are performed over time.  The Company used a cost-based input method to measure progress toward completion of the performance obligation and to calculate the corresponding revenue to recognize each period.

We identified revenue recognition based on a cost input measure of progress as a critical audit matter because of the significant judgment required by management to estimate total costs to complete and measure the progress toward completion of the performance obligation.  This, in turn, led to a high degree of auditor judgment and increased audit effort in performing procedures to evaluate key assumptions, including the use of a subject matter expert on technical accounting matters.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures included the following, among others:

•Inspecting, on a test basis, supporting documentation for costs incurred which are used to measure progress toward completion and to calculate revenue recognition.  

•With the assistance of a subject matter expert on technical accounting matters, reviewing the collaboration agreement and management’s analysis to evaluate the reasonableness of management’s accounting conclusion to recognize revenue each period based on a cost-based input method to measure progress toward completion.

•Inquiring with research and development personnel to evaluate factors related to the nature of the work to be performed and their impact on the total contract costs to be incurred, including progress to date and the estimate of remaining contract costs.

•Performing a retrospective review to assess the Company’s historical estimates of remaining costs to complete the research and development services.

•Recal