Company: DNLI
Filing Date: 2025-02-27
Form Type: 10-K
Source: 0001714899-25-000066
Chunk: 188

Company: Denali Therapeutics Inc.
Filing Date: 2025-02-27
Form: 10-K
Item: Item 8
Chunk 188
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 procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter 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.

135

Accrued and prepaid research and development costsDescription of the MatterAs more fully described in Note 1 to the consolidated financial statements, the Company records accrued liabilities for estimated costs of research and development (R&D) activities and prepaid research and development costs based upon the estimated cost of services provided and the timing associated with those payments. As of December 31, 2024, accrued clinical and other R&D costs were $18.1 million and prepaid clinical R&D costs were $6.5 million. The accrued and prepaid R&D costs (“Accrued and Prepaid R&D Costs”) are based on an estimate of the clinical trial and related R&D costs incurred under service agreements with organizations that conduct R&D activities on behalf of the Company. The Company expenses costs incurred based on several factors, such as information obtained from vendors and estimates of the work completed by the vendors. Auditing the Company's accounting for Accrued and Prepaid R&D Costs was complex because the Company’s analyses are dependent upon data obtained from external third-party service providers who directly perform services but also often act as intermediaries to those performing the underlying services. The determination of the balances when the Company has either not been invoiced or has not received information regarding actual costs incurred requires estimation of the stage of completion of certain services.How We Addressed the Matter in Our AuditWe obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s