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2012 | Annual Report

ABN 14 003 348 730

Reckon Limited Annual Report

for the Financial Year Ended 31 December 2012

04 Our results at a glance
05 Message to shareholders from the Chairman and the Group CEO
08 Directors’ Report
14 Remuneration Report
24 Corporate Governance Report
30 Auditor’s Independence Declaration
31 Independent Auditor’s Report
33 Financial Report
33 Directors’ Declaration
34 Consolidated Income Statement
35 Consolidated Statement of Comprehensive Income
36 Consolidated Statement of Financial Position
37 Consolidated Statement of Changes in Equity
39 Consolidated Statement of Cash Flows
40 Notes to the Financial Statements
88 Additional Information

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Our Results at a Glance

Operating Revenue

Operating revenue was up 7% to $96.6 million from $90.2 million.

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2006 2007 2008 2009 2010 2011 2012
100
90
80
70
60
50
40 90.2 96.6
$m 30
% Growth 23% 8% 42% 6% -% 7%
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EBITDA

Group EBITDA was up 9% to $34 million from $31.3 million.

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2006 2007 2008 2009 2010 2011 2012
35
30
25
20
15
10
31.3 34.0
5
$m 0
% Growth 26% 15% 32% 20% 4% 9%
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NPBT

Group NPBT was up 8% to $23.9 million from $22.2 million.

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2006 2007 2008 2009 2010 2011 2012
28
24
20
16
12
8
4 22.2 23.9
$m 0
% Growth 21% 14% 18% 26% -% 8%
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Message to Shareholders from the Chairman and Group CEO

Overview

2012 marked an important year in the evolution of Reckon Limited.

The growing diversity of our business and depth of our product suite has driven us to realign all our products under a single Reckon brand name. Consequently, we have commenced implementing significant changes to elevate awareness of the Reckon brand name and re-position our products in the market.

Our market comprises micro to larger sized businesses covering most industries, accountancy practices ranging in size from sole practitioners to the Big 4, bookkeepers, tax agents, and legal practices in multiple countries.

We are unique in our markets, offering our solutions as either desktop, hosted or cloud and provide our clients with options that suit them best.

We have also made organisational changes to ensure we have the development skills, energy and skilled talent for our desktop, hosted and cloud solutions. Reckon is thus well positioned to meet the specific needs of our broad range of customers and partners.

We have achieved a lot in terms of integrating our operations and products across our key businesses.

The financial performance for the company in 2012 was once again very good and builds on the momentum over previous years to position us well in 2013 and beyond.

Key Performance Metrics

	~~2012~~	~~2011~~	~~% Change~~	~~Amount Change~~
Revenue	$96.8 million	$90.7 million	7% increase	$6.1 million
~~EBITDA~~	~~$34.0 million~~	~~$31.3 million~~	~~9% increase~~	~~$2.7 million~~
NPAT	$17.8 million	$16.7 million	6% increase	$1.1million
~~EPS~~	~~13.4 centsper share~~	~~12.1 centsper share~~	~~11% increase~~	~~1.3 centsper share~~

Dividend

On 5 February 2013, the Board declared a final dividend of 4.75 cents per share (4.5 cents per share in 2011). The dividend was 90% franked. The interim dividend announced on 7 August 2012 was 3.75 cents per share, also franked to 90%.

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Message to Shareholders from the continued Chairman and Group CEO

Divisional Performance

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Operating % change on % change on
EBITDA
Revenue 2011 Revenue 2011 EBITDA
Business division $58.3 million + 4% $21.3 million + 4%
Professional division $25.1 million + 8% $12.4 million + 16%
nQueue Billback division $10.8 million - 3% $4.6 million -9%
Virtual Cabinet division $2.4 million n/a $0.5 million n/a
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Business Division

Revenue growth in the Business division was 4%, the result was however mixed. Despite the division being impacted by a declining retail channel, there were encouraging growth signs in the non-retail channels. Direct revenue grew by 8%, based on 18% unit sales growth offset by a net price/mix reduction of 10%. Revenue from hosted products grew by 67%; and revenue from enterprise products grew by 16%. The negative impact of the retail channel and the price/ mix is expected to reduce over time. The Reckon Docs business grew revenue by a significant 17%. We plan to continue focussing on our direct sales effort to professional accountancy firms which contributed to market share growth in 2012. The establishment and growth of a direct sales team especially for online/hosted products, enterprise products and Reckon Docs has had a positive impact on the Business division.

From March 2014 we will no longer be paying any royalties to Intuit Inc. This is the outcome of the re-negotiation of our licensing agreement with Intuit Inc. We have also secured a 100 year licence to the latest version of the Intuit source code for QuickBooks and Quicken products from Intuit Inc. As a result we are changing the QuickBooks and Quicken product names. This has already been done for Quicken, which is now known as the Reckon Accounts personal range, and QuickBooks products will be renamed the Reckon Accounts business range from April 2013.

On top of the reliability and growth of our existing products in the Business division, we are particularly excited about the impending launch of our cloud accounting solution, Reckon One, planned for the second quarter of 2013. The new solution has been developed with a “designed by you” philosophy, aimed at meeting the specific needs of the customer with a cost-effective outcome. This product will be highly scalable and transportable.

Professional Division

The Professional division (APS product range) strengthened its position as supplier of choice to top professional accountancy firms. The division achieved strong results in Australia and New Zealand and overall revenue grew 8%. Through the continued acquisition of new clients the division has grown market share. APS is now pursuing a stepped up product roll out targeted to increase the average number of modules used by the existing customer base. Newer modules that are expected to help achieve this strategy include Company Secretarial, Workpaper Management and Virtual Cabinet document management.

As with the Business division, the Professional division is expanding its addressable market through APS Private Cloud which allows accounting practices to access all their software products (not just APS products) as a hosted solution, providing our clients with improved efficiency opportunities and tremendous cost savings.

Effective from 31 December 2012 the APS UK business was sold to the previous managing director. Reckon continues to own the intellectual property in the APS technology and will receive an ongoing revenue stream from royalties on sales under the new licensing agreement. There is not expected to be any material change to the profit generated under the new arrangements.

nQueue Billback Division

Reckon’s nQueue Billback business experienced strong growth in the United Kingdom and continues to add new clients in the USA. We have moved management control over our Australian legal business to the nQueue Billback management team, and anticipate that their domain expertise will positively impact on future results for this business. We also consolidated our shareholding in this business by acquiring the minority shareholdings effective at 31July 2012.

Virtual Cabinet Division

The Virtual Cabinet business which develops and distributes document management and document portal technology was acquired in July 2012. This is an exciting addition to our product suite. So far it has performed according to expectations. We now have the opportunity to continue growth in its traditional United Kingdom markets, as well in Australia, New Zealand and potentially also in the USA.

Focus

In the Business division we aim to build on our customer growth successes in past years. We will also enjoy the benefit of the profit uplift from no longer paying royalties to Intuit from 2014 onwards. This year we will launch Reckon One, our new cloud accounting solution, and we will look to expand this product beyond our traditional markets. We are well underway in rebranding the business and re-naming the products. QuickBooks will be renamed Reckon Accounts in April 2013. We aim to continue growing sales by building out our direct sales force.

In the APS business we see incremental revenue opportunities from APS Private Cloud and Virtual Cabinet.

nQueue Billback’s focus remains on expanding our existing customer base and evaluating Virtual Cabinet’s opportunities in their market.

For Virtual Cabinet there is focus on long term sales targets in the United Kingdom and expanding the market to include Australia and New Zealand and re-sellers in other parts of the world.

The business as a whole has been very successful since its listing in July 1999 and we have consistently delivered according to our strategies, and developed and adapted over time.

Also, we have built businesses based on our strong relationships with SMEs, accountants, lawyers, and our network of partners to deliver solutions designed to meet the specific needs of our customers.

On top of that we offer high quality technology and domain expertise across the diverse areas that we service.

Reckon’s financial strength and proven track record gives our customers and partners confidence that we can continue to lead the market in delivering innovative and high quality products and solutions now and into the future.

We would like to acknowledge the continued support of our network of partners that include accountants and bookkeepers, as well as business and IT consultants, from across Australia and New Zealand. We also thank Reckon staff, our customers, our suppliers and fellow directors for their contribution in 2012, and look forward to working with them this year.

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Clive Rabie Group CEO

John Thame Chairman

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Directors’ Report

The Directors of Reckon Limited submit these financial statements for the financial year ended 31 December 2012

Board of Directors

The Directors of Reckon Limited submit these financial statements for the financial year ended 31 December 2012.

John Thame AAIBF FCPA

Non-Executive Chairman

John Thame has a lifetime of experience in the retail financial services industry. He was Managing Director of Advance Bank Limited from 1986 until it merged with St George Bank Limited in January 1997 and held a variety of senior positions in his career with Advance. John was Chairman of St George Bank Limited from 2005 to 2008 and a member of the St George Bank Limited board until 1 July 2008. He is also Chairman of Abacus Property Trust Group Limited, where he has been a Director since 2002. John was appointed to the Board on 19 July 1999.

Ian Ferrier FCA

Non-Executive Director

Ian Ferrier is a Fellow of the Institute of Chartered Accountants in Australia. He has extensive experience in company corporate recovery and turnaround practice. He is also a Director of a number of private and public companies. Ian was appointed Chairman of InvoCare Limited in 2001. Ian is also Chairman of Australian Vintage Limited having been a Director since 1991 and Chairman of Goodman Group Limited since 2003 and a Director of Energy One Limited. He has significant experience in property and development, tourism, manufacturing, retail, hospitality and hotels, infrastructure and aviation and service industries. Ian joined the Board on 17 August 2004.

Greg Wilkinson

Deputy Non-Executive Chairman

Greg Wilkinson has over 30 years experience in the computer software industry. Greg entered the industry in the early 1980s in London where he managed Caxton Software, which became one of the UK’s leading software publishers. Greg co-founded Reckon in 1987 and was the Chief Executive Officer until February 2006. He was appointed to the position of Deputy Chairman in February 2006 and became a member of the Board of the listed entity on 19 July 1999. He was appointed to the Audit & Risk Committee in February 2010 and Remuneration Commitee in December 2011.

Clive Rabie

Group Chief Executive Officer

Clive was Chief Operating Officer of Reckon from 2001 until February 2006 and in that time played a pivotal role in its turn-around. In February 2006 Clive was appointed to the position of Group Chief Executive Officer. He has extensive management and operational experience in the IT and retail sectors as both an owner and Director of companies.

Myron Zlotnick LLM, GCertAppFin

General Counsel and Company Secretary

Myron Zlotnick has over 20 years experience as a legal practitioner, general and corporate counsel, and as a Director of companies in the information, communications and technology sector. Myron also assumes responsibility for some aspects of the management and operations of the Reckon Docs and nQueue Billback businesses. He is also a member of the Business Advisory Committee of ASIC’s “Real Economy”.

Marianne Kopeinig LLM, GDipApplCorpGov

Legal Counsel and Assistant Company Secretary

Marianne has over 15 years experience as a private practitioner and corporate counsel for private and ASX listed companies and broad industry experience in commercial, risk management and compliance functions.

Principal Activities

Reckon Limited conducts business predominantly across four areas:

(1) the sales and support of small to larger sized business accounting software and personal wealth management software under the Reckon Accounts business range and Reckon Accounts personal range brands; the sales and support of company secretarial services such as company incorporations, SMSF documentation and ASIC compliance management under the Reckon Docs brand,
(2) the sales and support of accounting practice management and allied software under the APS brand to larger professional accounting firms, and to smaller professional accounting firms under the Elite brand;
(3) supplying software solutions to legal firms and corporations in the main areas of revenue management, expense management, print solutions, business process automation, business intelligence, document service automation, and document management under the nQueue Billback brand; and
(4) sales and support of document management and document portal products to a wide variety of clients under the Virtual Cabinet brand.

Through strategic development and acquisition of businesses and technology, Reckon aspires to broaden its scope of operations to provide complementary products and services across these business areas. The main products and services are principally organised into four operating units: the Business division, the Professional division, the nQueue Billback division and the Virtual Cabinet division.

Business division

In the Business division, under the QuickBooks brand range (which will be known as the Reckon Accounts business range from April 2013), and Reckon Accounts personal brand range (previously known as Quicken), Reckon develops, localises, distributes and provides after sales technical support for the accounting software needs of small to medium sized and enterprise businesses as well as in the personal finance and wealth management sector. In addition, Reckon independently develops and distributes a payroll and point of sale solution. Reckon also develops applications that enhance these products, for example: electronic data interchange (“EDI”) functionality, bill payment solutions, super choice management solutions, on-line backup, and on-line trading.

Reckon has co-ordinated its group product development efforts to meet the growing demand for remote and mobile access to solutions and applications, and cloud based products. This includes co-ordination across the Business division and Professional division to meet a longer term goal of integrated and collaborative solutions for accountants, bookkeepers and small to larger sized enterprises.

Overall Reckon is developing its range of products which bring together all its traditional and new applications, whether on a desktop, hosted, or in the cloud, in a single environment where they integrate to improve collaboration between businesses, accountants, banks, government agencies and other stakeholders. To this end, Reckon also independently develops, sells and supports:

(1) QuickBooks Hosted (will be named Reckon Accounts Hosted in April 2013). This offers end users and accountants a convenient secure online product that is accessible from anywhere that very closely mimics the Reckon Accounts business range desktop package;
(2) CashBook Online, a simple cloud-based product that links to banks;
(3) Reckon BankData which allows connections with banks and other financial institutions to permit customers to directly download bank statement data into CashBook Online;
(4) Reckon GovConnect which delivers and lodges relevant reports from QuickBooks (to be renamed Reckon Accounts), seamlessly to government agencies such as the ATO; and
(5) an online version of Reckon’s POS product which will be made available at the end of April 2013.

In the second quarter of 2013 Reckon will launch Reckon One, a more versatile and flexible cloud accounting

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continued Directors’ Report

solution for small businesses. The program will be modular based on the concept “designed by you” allowing users to tailor the solution to their needs wherever they are “anytime, anywhere”, unlike other offerings which are ‘one size fits all’.

The Reckon Elite business develops and distributes tax return preparation tools, practice management tools and related solutions for accountants and tax agents in public practice, with some recent sales in other markets. Reckon Elite focuses on sales to smaller accounting firms compared to APS, in the Professional division, which focuses on the larger firms. An online version of Reckon Elite will soon be made available as part of the company’s overall strategy to offer integrated online solutions for small business owners and accountants.

The Reckon Docs services business comprises technology for the registration and compliance management of companies and other business structures through an easy to use web based ordering system. This business provides clients with: an online company registration service available 24 hours a day, seven days a week; documentation and services for the establishment of a range of entities, especially trusts for self managed superannuation funds; constitution updates and domain name registrations; and other documentation for human resources needs.

The Reckon Docs data business provides comprehensive accredited business name and ASIC information electronically combined with a highly personalised client relationship. A full range of sophisticated information services to assist customers with the provision of financial, corporate and statutory information is also offered.

Reckon Docs also offers a desktop utility called Reckon Docs Desktop (RDD) that is a simple and convenient desktop application for company registration, searches, and ASIC compliance management. This product is also integrated into the Practice Management suite of APS, known as Advance Corporate Registers (ACR).

Professional division

In the Professional division, the APS business develops, distributes and supports a suite of solutions for professional service firms in Australia, New Zealand and, via a reseller arrangement, in the United Kingdom. For professional accountants these solutions also include tax and accounts production. The division also delivers a wide range of complementary applications for practice management.

Together the Professional and Business divisions co-ordinate development to meet the Group’s overall strategy of delivering integrated solutions, on the desktop, in a hosted environment, and in the cloud, to businesses and accountants.

The APS business continues to be considered a market leader in the provision of its products and services to professional accounting firms. This is reflected in the market share that APS enjoys in Australia and New Zealand.

Reckon through APS, has committed several years of research and development to delivering unique integrated practice software to work off a single platform, offering all its solutions under the collective “Advance” suite.

The Advance suite comprises several integrated modules for several business critical functions in professional firms: Practice Management (PM); Business Intelligence and Reporting (PIQ); Document and E-mail Management (DM); Taxation (Tax); Client Accounting (XPA); Client Relationship Management (CRM); Resource Planning (RP); Superannuation (DS); Corporate Secretarial (ACR); Workpaper Management (WM); and others.

nQueue Billback division

The nQueue Billback division provides software and support services in the revenue management, expense management, print solutions, document service automation, and document management markets. It currently operates in Australia, the United Kingdom and the USA, and has reseller arrangements in other parts of the world.

The division assists law firms and commercial and government clients by enhancing the automation and processing of any operational and administrative expenses, including print, copy, scan, telephone, online searches, emails, court fees, car services, credit card charges, courier costs and more. nQueue Billback’s software offerings can be embedded directly into multi-function devices or reside on tablet computers or terminals to provide clients with the knowledge required to run their businesses more profitably.

Virtual Cabinet division

The Virtual Cabinet division enables companies to control all documents in a secure document management system. Virtual Cabinet document management fully integrates with back office systems and has the ability to link all forms of electronic files back to client records. Linked with the document portal it also provides a secure and audit trailed method to send documents to selected recipients, and provides an efficient method for professionals to collaborate with their clients.

Review of Operations

Reckon’s financial performance can be summarised as follows:

Revenue was up 7% to $96.8 million from $90.7 million.
Group EBITDA was up 9% to $34.0 million from $31.3 million.
Group NPAT was up 6% to $17.8 million from $16.7 million.
Basic EPS was up 11% to 13.4 cents per share from 12.1 cents per share.
Final dividend of 4.75 cents per share and an interim dividend of 3.75 cents (a total of 8.5 cents), compared to a total dividend of 8 cents in 2011 – 90% franked.
The Group had $9.1 million net debt at 31 December 2012 arising out of acquisitions during the year.

For 2012, direct revenue in the Business division continued to trend upwards, growing by 8%, with strong performances in sales of enterprise versions of QuickBooks (soon to be named Reckon Accounts business range in April 2013) and QuickBooks Hosted (soon to be named Reckon Accounts Hosted in April 2013). The division was again however impacted by a weak retail channel in 2012. Hosted products revenue grew 67% while enterprise products revenue grew 16%. Both these products are expected to contribute to future growth. Reckon Docs products grew by a significant 17%.

The Professional division had a particularly good result in Australia and New Zealand for the year, with revenue growing by 8%. In the APS business, incremental revenue opportunities are present from APS Private Cloud and Virtual Cabinet Document Management.

The nQueue Billback business displayed strong growth in the United Kingdom and continued to add new clients in the USA. Reckon also consolidated its shareholding in this business by acquiring the minority shareholders effective at the end of July 2012. nQueue Billback has refreshed its product so as to present a cross selling opportunity in its existing customer base/markets and plans to investigate the feasibility of selling document management in the wider USA market.

On 1 July 2012 Reckon acquired an initial interest in Linden House Software Limited (Virtual Cabinet) for $9.2 million with an option to acquire 100% based upon the performance of the business over the next 3 years. The Virtual Cabinet business has performed according to expectations in the first 6 months. For Virtual Cabinet there is focus on long term sales targets and expanding the market to include Australia, New Zealand and other parts of the world.

Effective 31 July 2012 Reckon acquired the outstanding minority investments in the nQueue Billback companies in the United Kingdom (25%) and the United States (26%) for $4.5 million.

On 11 April 2012 Reckon acquired a strategic minority investment in Connect2Field Holdings Pty Ltd for $0.7 million. This company develops, sells and supports field job management and scheduling software with integration into the Reckon Accounts business range of products.

Effective from 31 December 2012 the APS UK business was sold to the previous managing director. Reckon will receive an ongoing revenue stream from royalties on sales under a licensing agreement. There is not expected to be any material change to the profit generated under the new arrangement.

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continued Directors’ Report

While Reckon continues to pursue its strategy of including web hosting, domain name re-sales, e-commerce enablement and allied services as part of its offering to small businesses, it decided to dispose of its strategic equity investment in Melbourne IT Limited. So, commencing on 22 February 2012 and ending on 30 March 2012, Reckon sold its minority interest (less than 5%) in Melbourne IT Limited. The company sold 4,000,897 shares for $6.4 million.

On 22 March 2012, Reckon announced that as a consequence of the gradual divergence of the respective online ambitions of Reckon and Intuit Inc, they have entered a notice period ending on 10 February 2014, when Reckon’s licensing agreement with Intuit will be formally terminated. An important impact of this is that from March 2014 Reckon will no longer be required to pay a royalty to Intuit on sales of the Reckon Accounts business and personal product ranges. Reckon will still continue to have access to the then latest version of the source code for these products to continue selling and to independently develop the desktop and hosted technology for a 100 year period. Reckon has already commenced a product re-naming exercise with Reckon Accounts personal range (formerly known as Quicken range), and QuickBooks will be renamed Reckon Accounts business range from April 2013.

The combination of businesses, development roadmaps and marketing strategies means Reckon now occupies a unique position in the market. The company will be in the position of being able to supply desktop, hosted and cloud solutions across its suite of solutions for all clients.

Reckon is aiming to supply products right for the customer not just in software design but also to ensure the platform is suited best to the customer.

Also, the businesses are based on strong relationships with SMEs, professional accountants, lawyers and a network of partners to deliver solutions designed to meet the specific needs of the markets into which the company sells.

Buyback 2012

Pursuant to the announcement of a share buy-back on 7 August 2012, 3.4 million shares were purchased at an average price of $2.27 per share during 2012.

Dividends

On 5 February 2013, the Board declared a final dividend of 4.75 cents per share (90% franked) payable to shareholders recorded on the company’s register as at the record date of 15 February 2013. Reckon does not have a dividend re-investment plan currently in operation. On 7 August 2012, the Board declared an interim dividend of 3.75 cents per share (90% franked) payable to shareholders recorded on the company’s register at record date of 22 August 2012.

Significant Changes in State of Affairs

There were no significant changes in state of affairs.

Matters Subsequent to the End of the Financial Year

On 5 February 2013 Reckon announced a buy-back of shares which permits the company to buy back up to 10% of its shares on the open market. As at 8 March 2013, zero shares have been bought back. It is anticipated to keep the buy back in place until 4 February 2014 subject to the normal ASIC requirements.

Other Matters

Other than as disclosed in this Directors’ Report no other matter or circumstance has arisen since 31 December 2012 that has significantly affected, or may significantly affect:

the consolidated entity’s operations in future financial years, or
the results of those operations in future financial years, or
the consolidated entity’s state of affairs in future financial years.

Future Developments

Reckon will continue to pursue its historically well tested strategies of expanding its product offering; pursuing recurring revenue; selling across divisions; maintaining and enhancing relationships with its network of partners, including retailers and professional partners; and striving for operational efficiency.

While traditional business will remain important, the Group will also continue to pursue its cloud strategy focusing on developing products that fit into the Reckon integrated product suite to provide solutions for small to larger businesses, accountants and lawyers that are integrated, allow for collaboration, and are connected to financial institutions and government agencies.

Key to future plans is the development philosophy to design by the user, so that the user is able to decide how much of the product is applicable to its business and consequently need only pay for what it needs and thereby achieve a cost effective outcome.

Other than as outlined above, disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report.

Directors’ Shareholdings

As at the date of this report, the Directors held shares and options in Reckon as set out in Note 28 to the financial statements.

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continued Directors’ Report Remuneration Report

(Audited)

Key Management

The key management personnel include the directors and those people who have authority and responsibility for planning, directing and controlling the activities of the consolidated entity. Key management personnel details are set out on page 18 below.

Policy for Determining Remuneration of Key Management Personnel

The Policy for determining remuneration of key management personnel, including the directors, the deputy Chairman, Group CEO, Group CFO, Divisional CEOs and other Company officers is the ultimate responsibility of a remuneration committee comprising the Chairman of the Board and the other independent non-executive directors. The Chairman of the remuneration committee is Ian Ferrier. There is no formal charter for the remuneration committee. Policy is set with due consideration for the need to motivate directors and management to pursue the long-term growth and success of the Company as well as to tie remuneration in with performance as contemplated in the ASX Corporate Governance Principles and Recommendations (“ASX Guidelines”). It is the view of the Board that the Company complies with the substance of the aims and aspirations of the ASX Guidelines in the context of the size of the company, the size of the Board, the size of the senior management team and the size of the business.

The Policy for determining remuneration of other management personnel has been delegated to the Group CEO, Group CFO and Divisional CEOs by the Board to be exercised in accordance with the same broad principles as apply for the Group CEO, Group CFO, other company officers and Divisional CEOs.

The Board reviews all remuneration in its consideration of the Company’s annual budget process. The Board, through the remuneration committee will consider for approval the levels of remuneration set in the annual budgeted, taking into account the relevant performance budgeted as well as compared with historical performance.

The policy is to pay the relevant officers and employees’ remuneration consistent with applicable market comparisons suited to the unique features of the company, the competitive landscape, the scale of the business, the responsibilities of the individual directors and employees, internal relativities and performance.

The Board is conscious of the need to attract and retain talent. The remuneration policy takes account of striking the right balance between short term benefits and long term incentives. All remuneration is reviewed annually. Generally increases, if justified, will not exceed comparable market increases.

Terms of Employment for Key Management Personnel

Executive directors and Group executives are all appointed on standard employment terms that are not fixed term contracts. These contracts include a notice period of between 1-3 months to be provided by either the executive or the company. No contract provides for termination payments except where the employee is to receive payment in lieu of notice.

For 2012, remuneration for key management personnel including the Group CEO, Group CFO, other company officers, Divisional CEOs, and other senior executives, comprises a fixed element, a short-term incentive element and a long-term incentive element.

Fixed Component

The fixed component of remuneration is determined in preparing the annual budget for the year and then subjected to the approval of the Board through the remuneration committee.

Short-Term Incentive Payments

The short-term incentive component of remuneration is dependent on satisfaction of performance conditions. Each annual budget fixes a pool representing the total potential amount in which the relevant employees can share if the performance conditions are met. There are three weighted elements to the performance conditions, viz: a revenue target, an earnings before interest, tax, depreciation and amortisation (EBITDA) target, and earnings per share (EPS) target measured against the budgeted performance of the Company.

The Board retains a discretion regarding the allocation of the pool between employees as well as regarding weightings.

Short term incentives are paid in cash as bonuses usually in about February or March of the following year.

The amounts paid include a portion effectively requiring the employee to remain employed for further one year before being paid the remaining short term bonus for performance in that year.

Long-Term Incentive Payments

The long-term incentive component is the last of the mix of the components comprising remuneration packages. It is aimed at retaining the long term services of the key management personnel to whom it applies and to align their remuneration with the longer term performance of the Company. The substance of the long-term incentive component for key management was approved by Special General Meeting on 20 December 2005.

In general terms, the long-term incentive component comprises several possible methods of participation: an option plan, a performance share plan (which includes a long term retention incentive) and a share appreciation plan. The Board has discretion to approve the making of offers to applicable employees to participate in any of these plans. Options granted and/or performance shares awarded (all in respect of the Company’s ordinary shares) and/or share appreciation rights do not vest before three years after their grant date or at least seven years in the case of the long term retention incentive. Vesting is also conditional upon the Company achieving defined performance criteria. The performance criteria for all plans except for the long term retention incentive are based upon a total shareholder return (TSR) target. A TSR is the return to shareholders over a prescribed period, based upon the growth in the Company’s share price plus dividends or returns of capital for that period. The Company’s initial TSR target will be the Company achieving a median or higher ranking against the TSR position of individual companies within a ‘comparator group’ of companies (i.e. a group of comparable ASX listed companies preselected by the Board) over the same period. The mechanism and detailed criteria to achieve the Board’s objectives was designed by an independent consultant and offers were made under the rules of the company’s original performance share plan approved by shareholders at the Special General Meeting on 20 December 2005.

The Board will review the suitability of the comparator group on an ongoing basis. Some of the entities comprising the comparator group have been delisted either as part of merger and acquisition activity or for other reasons. This was factored into the calculation of the Company’s performance by the independent valuers who undertook the exercise on behalf of the Company. Where companies were de-listed or suspended, for example, it was assumed that the Company out-performed that company. The comparator group of companies used in the performance period for assessment included (1) Adacel Technologies Limited, (2) Firstfolio Limited (previously listed as AFS), (3) Altium Limited, (4) Amcom Telecommunications Limited, (5) ASG Group Limited, (6) CPT Global Limited, (7) Eftel Limited, (8) Eservglobal Limited, (9) Hansen Technologies Limited, (10) Infomedia Ltd, (11) Integrated Research

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continued Directors’ Report continued Remuneration Report

(Audited)

Limited, (12) Melbourne IT Limited, (13) Lifestyle Communities Limited (previously listed as NMB), (14) MYOB Limited (no longer listed), (15) Newsat Limited (suspended from trading), (16) Objective Corporation Limited, (17) Oakton Limited, (18) Powerlan Limited, (19) Queste Communications Limited, (20) Rea Group Ltd, (21) Sirius Corporation Limited, (22) Sonnet Corporation Limited (no longer listed), (23) Asian Pacific Limited (previously listed as TMO, no longer listed), (24) Technology One Limited, (25) Talent2 International Limited (no longer listed), (26) Chariot Limited (no longer listed), (27) Citect Corporation Limited (no longer listed).

Only 50 percent of options or performance shares become exercisable or vest if the initial performance criterion is satisfied. The extent to which the balance of options or performance shares become exercisable or vest will depend on the extent to which the initial performance criterion is exceeded (i.e. the extent to which the Company exceeds a median ranking against the TSR position of the comparator group of companies).

The share appreciation right plan represents an alternative remuneration component (to offering options or performance shares) under which the Board can invite relevant employees to apply for a right to receive a cash payment from the Company equal to the amount (if any) by which the market price of the Company’s shares at the date of exercise of the right exceeds the market price of the Company’s shares at the date of grant of the right. The right may only be exercised if performance criteria are met. The performance criteria are fixed by the Board in the exercise of its discretion. At present these are the same as the TSR target set for the right to exercise options or for performance shares to vest.

On 24 May 2011 the remuneration committee approved and recommended to the board an extension to the long term incentive plan.

The genesis of the idea to extend the plan and offer additional performance shares was to provide a reward and an incentive for senior level employees who have a long employment history and good performance record.

It was also intended that these performance shares could be used to provide an incentive for employees with potential for a longer term contribution to the success of the company to participate in the growth of equity value of the company.

Part of the company’s success as an organisation is premised on human domain expertise and the consistency and longevity of service of key management.

The offer of these additional performance shares is designed to encourage and reward employees to commit to longevity as well as to complement other traditional forms of executive remuneration.

By rewarding those executives who commit to the company over a very long period and thereby providing management stability as the business grows and matures the Board believes long term shareholder benefits will result.

Other aspects of the remuneration strategy deal with fixed remuneration, short term and long term incentives and are measured against customary key indicators such as revenue growth, EBITDA, EPS and TSR. This strategy has now been enhanced to provide a measure of equity rewards for very long and consistent performance by executives considered key.

The independent consultant did not make any remuneration recommendation in relation to the key management personnel for the company.

These performance shares are offered to selected employees with the principal vesting condition that participants must remain employed for the term specified. The shares offered remain at risk of forfeiture until the relevant period of service has been satisfied. There is no entitlement to dividends during the relevant period of service.

Offers made are staggered in such a way that for 100% of the shares to vest, the employee must remain in employment for 10 years from the date of the initial offer, with a minimum of 7 years.

In the context of the overall remuneration strategy of the company, the history of the performance of the company, and the relative value of the shares offered, the remuneration committee is of the view that the addition of this incentive to remuneration offered is appropriate and ‘fair and reasonable’, a view supported by the independent consultant.

It is the remuneration committee’s belief that the addition of these performance shares has added to the balance and overall mix of remuneration to the applicable employees in a positive way. If the exacting service requirements are not satisfied then any costs incurred under AASB 2 will be recouped and any forfeited shares will be available for reallocation or to fund other employee equity entitlements.

Balance Between Salary, Short-Term and Long-Term Incentives

It is the Board’s opinion that an adequate balance is struck between the three components comprising the relevant remuneration. For short term incentives, the performance targets reflect, in part, the key factors that the Company pursues in measuring its performance: volume of sales; earnings generated; and value returned to shareholders in terms of EPS. The targets also represent a measure of an incentive to encourage commitment to the business and to its growth. The audited financial results for the year are used to assess whether the performance conditions are satisfied. Audited results represent an independent accurate method of determining the attainment of the conditions. For long-term incentives, the additional targets comprising TSR reflect a further assessment of value to shareholders before the remuneration is earned. As stated above the comparator group might be subject to review.

The remuneration committee is satisfied that to date, the remuneration of the relevant employees accords with the general upward trend of the performance of the Company and returns to shareholders, as set out in the table below; and also takes into account the imperative to retain their services so as to avoid the business and opportunity costs associated with replacing them as well as the need to be commensurate with market rates.

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Change in share price between
beginning and end of year
NPAT EPS Dividend
Beginning of End of
January December
$’000 (cents per shares) (cents)
2008 11,312 8.5 6.0 139 105
2009 13,602 9.9 7.0 105 184
2010 17,248 12.4 8.0 184 234
2011 16,693 12.1 8.0 234 234
2012 17,767 13.4 8.5 234 236
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Total shareholder return for the period 2010 to 2012 was 54%. For the same period the index return for the ASX All Ordinaries was negative 4.5% and the index return for the S&P/ASX 200 was 9.3%.

The Company’s Trading Policy prohibits directors, key management personnel and employees from entering into a transaction with securities which limit the economic risk of any unvested entitlements awarded under any Reckon equity-based remuneration scheme. Prior to presenting full-year results Reckon equity plan participants are required to confirm that they have not entered into any transactions which would contravene the Company’s Trading Policy.

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continued Directors’ Report continued Remuneration Report (Audited)

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Other
Fixed Short term incentive compen- Long term incentive
component component sation component
Equity Cash
settled settled
share share
based based
Other short payments payments
Remuneration
term Super- Performance Appreciation Total
2012 Office Salary Bonus [1] benefits annuation shares [2] rights [3] remuneration
Directors [5]
Chairman,
John Thame Non-executive $105,000 $0 $0 $9,450 $0 $0 $114,450
Director
Deputy
Greg Wilkinson Chairman, Non-executive $90,000 $0 $0 $8,100 $0 $0 $98,100
Director
Group CEO,
Clive Rabie Executive $614,500 $241,137 $0 $39,500 $0 $105,560 $1,000,697
Director
Ian Ferrier Non-executive Director $90,000 $0 $0 $8,100 $0 $0 $98,100
Executives [5]
CEO,
Sam Allert [6] Professional $313,540 $74,723 $13,243 $26,540 $23,551 $0 $451,597
Division
Chris Hagglund CFO $371,537 $111,176 $0 $29,037 $73,854 $0 $585,604
General Counsel
Myron Zlotnick & Company $303,090 $74,145 $0 $26,090 $52,968 $0 $456,293
Secretary
CEO,
Brian Coventry [4] Professional $332,368 $74,723 $0 $29,487 $0 $0 $436,578
Division
Gavin Dixon [7] CEO, Business Division $413,860 $116,204 $0 $30,860 $19,739 $0 $580,663
President and
Richard Hellers CEO, nQueue $253,378 $48,263 $12,844 $13,328 $0 $0 $327,813
Billback division
TOTAL $2,887,273 $740,371 $26,087 $220,492 $170,112 $105,560 $4,149,895
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The potential amounts payable for the short term cash performance bonuses are determined at the beginning of the year and are earned based upon the performance criteria for the year. The amounts paid include a portion for 2011 effectively requiring the employee to remain employed for a further one year period to 31 December 2012 before being paid the remaining short term bonus for performance in 2011. The short term bonus for Mr Hellers is based on specific performance targets for the nQueue Billback division.
The dollar values of the long term incentive and retention component is the fair value using a model that adapts the Monte Carlo simulation approach: (1) allocated over each year of the 3 year performance period for 2010 to 2012 and (2) allocated over the 7 year period from 2012 to 2018 for shares offered as a long term retention incentive. The fair value of the performance shares offered in 2012 for the performance period 2012 to 2014 at grant date was $1.785 per share valued according to the Monte Carlo simulation approach. The fair value of the shares offered in 2012 for the long term retention incentive for the period 2012 to 2018 at 1 January 2012 was $1.772 per share valued according to the Monte Carlo simulation approach. For the performance period 2012 to 2014 performance shares were offered as follows: Mr Hagglund (33,226 shares), Mr Zlotnick (21,787 shares), Mr Allert (10,894 shares), Mr Coventry, (10,894 shares) and Mr Dixon (37,039 shares). The date of grant for each of these participants was 1 January 2012. If the performance criteria are met, then the shares are released at no consideration on 31 December 2014. For the long term retention incentive period 2012 to 2018 performance shares were offered as follows: Mr Hagglund (25,000 shares), Mr Zlotnick (25,000 shares), Mr Allert

(12,500 shares) and Mr Coventry (12,500 shares). These shares vest on 31 December 2018 at zero cents subject to the employees remaining in employment for the period. The fair value of performance shares which vested or were forfeited during the 2012 financial year is set out in the table below. No options were granted to any person during the year as part of their remuneration. No options vested during the financial year. All options issued in previous years were fully vested in prior years. No options were exercised during 2012.

The dollar value of the share appreciation incentive in the above table is determined using a model that adapts the Monte Carlo simulation approach allocated over each year of the 3 year performance period for 2010 to 2012. The fair value of the rights offered for the performance period 2012 to 2014 was $0.441 valued according to the Monte Carlo simulation approach. 396,825 rights were issued under the plan on 1 January 2012 for the performance period 2012 to 2014. The fair value of appreciation rights which vested or were forfeited during the 2012 financial year is set out in the table below. For the share appreciation plan, the amount ultimately paid to the employee is calculated based on the difference between the company share price at vesting and the share price at date of issue spread over the three year performance period, multiplied by the number of rights granted. 4. Employment ended on 31 December 2012. No termination benefit paid. 5. To the extent that any of the above are directors of any wholly owned subsidiaries of the Company no additional remuneration is paid. 6. Promoted to the position on 1 October 2012. This represents remuneration for 12 months.
Resigned effective from 31 March 2013.

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Percentage
Percentage Percentage of available
of total of available bonus No of Value of Value of Value of
remuneration bonus which was Performance Performance Performance Appreciation Value of
that is which forfeited shares shares shares rights Appreciation
Remuneration performance vested in during the vested in vested in forfeited in vested in forfeited in
2012 continued related the year year 2012 2012 2012 2012 2012
Directors
John Thame 0% n/a n/a n/a n/a n/a n/a n/a
Greg Wilkinson 0% n/a n/a n/a n/a n/a n/a n/a
Clive Rabie 35% 88% 12% n/a n/a n/a $185,557 $0
Ian Ferrier 0% n/a n/a n/a n/a n/a n/a n/a
Executives
Sam Allert 25% 88% 12% 7,568 $13,086 $0 n/a n/a
Chris Hagglund 32% 88% 12% 41,216 $71,266 $0 n/a n/a
Myron Zlotnick 28% 88% 12% 27,027 $46,732 $0 n/a n/a
Brian Coventry 17% 88% 12% 12,573 $38,482 $72,224 n/a n/a
Gavin Dixon 23% 88% 12% 39,514 $68,323 $89,039 n/a n/a
Richard Hellers 15% 60% 40% n/a n/a $0 n/a n/a
TOTAL 127,898 $237,889 $161,263 $185,557 $0
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Options and shareholding for directors and relevant employees can be found at Note 28 to the financial statements.

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continued Directors’ Report continued Remuneration Report

(Audited)

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Other
Fixed Short term incentive compen- Long term incentive
component component sation component
Equity Cash
settled settled
share share
based based
Other short payments payments
Remuneration term Super- Performance Appreciation Total
2011 Office Salary Bonus [1] benefits [2] annuation shares [3 8] rights [4 6] remuneration
Directors [7]
Chairman,
John Thame Non-executive $100,000 $0 $0 $9,000 $0 $0 $109,000
Director
Deputy
Greg Wilkinson Chairman, Non-executive $85,000 $0 $0 $7,650 $0 $0 $92,650
Director
Group CEO,
Clive Rabie Executive $575,000 $206,052 $0 $51,750 $0 $338,360 $1,171,162
Director
Ian Ferrier Non-executive Director $85,000 $0 $0 $7,650 $0 $0 $92,650
Executives [7]
CEO,
Brian Armstrong [5] Professional $370,000 $114,751 $0 $33,300 $44,911 $0 $562,962
Division
Chris Hagglund CFO $350,000 $92,050 $0 $31,500 $74,488 $0 $548,038
General Counsel
Myron Zlotnick & Company $288,000 $61,367 $0 $25,920 $51,206 $0 $426,493
Secretary
CEO,
Brian Coventry Professional $321,000 $74,837 $0 $12,308 $18,813 $0 $426,958
Division
Gavin Dixon [8] CEO, Business Division $388,500 $99,783 $0 $34,965 $75,392 $0 $598,640
President and
Richard Hellers CEO, nQueue $228,967 $72,604 $9,970 9,197 $0 $0 $320,738
Billback division
TOTAL $2,791,467 $721,444 $9,970 $223,240 $264,810 $338,360 $4,349,291
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The potential amounts payable for the short term cash performance bonuses are determined at the beginning of the year and are earned based upon the performance criteria for the year. The amounts paid include a portion for 2010 effectively requiring the employee to remain employed for a further one year period to 31 December 2011 before being paid the remaining short term bonus for performance in 2010. The short term bonus for Mr Hellers is based on specific performance targets for the nQueue Billback division.
For Mr Hellers this represents an allowance for a motor vehicle as well as a contribution to medical and life insurance.
The dollar value of the long term incentive and retention component in the above table is the fair value using a model that adapts the Monte Carlo simulation approach: (1) allocated over each year of the 3 year performance period for 2009 to 2011 and (2) allocated over the 7 year period from 2011 to 2017 for shares offered as a long term retention incentive. The fair value of the performance shares offered in 2011 for the performance period 2011 to 2013 at grant date was $1.912 per share valued according to the Monte Carlo simulation approach. The fair value of the shares offered in 2011 for the long term retention incentive for the period 2011 to 2017 at 1 January 2011 was $1.84 per share valued according to the Monte Carlo simulation approach. For the performance period 2011 to 2013 performance shares were offered as follows: Mr Hagglund (32,268 shares), Mr Zlotnick (21,160 shares), Mr Coventry, (10,580 shares) and Mr Dixon (35,971 shares). The date of grant for each of these participants was 1 January 2011. If the performance criteria are met, then the shares are released at no consideration on 31 December
For the long term retention incentive period 2011 to 2017 performance shares were offered as follows: Mr Hagglund (25,000 shares), Mr Zlotnick (25,000 shares) and Mr Coventry (12,500 shares). These shares vest on 31 December 2017 at zero cents subject to the employees remaining in employment for the period. The fair value of performance shares which vested or were forfeited during the 2011 financial year are set out in the table below.
The dollar value of the share appreciation incentive in the above table is determined using a model that adapts the Monte Carlo simulation approach allocated over each year of the 3 year performance period for 2009 to 2011. The fair value of the rights offered for the performance period 2011 to 2013 was $0.620 valued according to the Monte Carlo simulation approach. 282,258 rights were issued under the plan on 1 January 2011 for the performance period 2011 to 2013. The fair value of appreciation rights which vested or were forfeited during the 2011 financial year are set out in the table below.
Employment ended on 31 December 2011. No termination benefit paid. 6. For the share appreciation incentive, the amount is calculated based on the difference between the company share price at vesting and the share price at date of issue spread over the three year performance period. 7. To the extent that any of the above are directors of any wholly owned subsidiaries of the Company no additional remuneration is paid.
No options were granted to any person during the year as part of their remuneration. No options vested during the financial year. All options issued in previous years were fully vested in prior years. No options were exercised during 2011.

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Percentage
Percentage Percentage of available
of total of available bonus No of Value of Value of
remuneration bonus which was Performance Performance Performance Value of Value of
that is which forfeited shares shares shares Appreciation Appreciation
Remuneration performance vested in during the vested in vested in forfeited in rights vested forfeited in
2011 continued related the year year 2011 2011 2011 in 2011 2011
Directors
John Thame 0% n/a n/a n/a n/a n/a n/a n/a
Greg Wilkinson 0% n/a n/a n/a n/a n/a n/a n/a
Clive Rabie 46% 91% 9% n/a n/a n/a $1,017,042 $0
Ian Ferrier 0% n/a n/a n/a n/a n/a n/a n/a
Executives
Brian
20% 91% 9% 111,583 $134,734 $22,666 n/a n/a
Armstrong
Chris Hagglund 30% 91% 9% 72,619 $80,197 $0 n/a n/a
Myron Zlotnick 26% 91% 9% 47,619 $52,588 $0 n/a n/a
Brian Coventry 22% 91% 9% 13,333 $14,724 $0 n/a n/a
Gavin Dixon 29% 91% 9% 80,952 $89,400 $0 n/a n/a
Richard Hellers 23% 75% 25% n/a n/a n/a n/a n/a
TOTAL 326,106 $371,643 $22,666 $1,017,042 $0
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For Mr Armstrong the $134,734 includes $44,911 being the value of 30,631 shares which represent two thirds of 45,946 performance shares offered in 2010 and released to Mr Armstrong by the board upon the termination of Mr Armstrong’s employment at the end of 2011.

Options and shareholding for directors and relevant employees can be found at Note 28 to the financial statements.

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continued Directors’ Report

Indemnification of Directors and Officers and Auditors

During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company (as named above), the Company Secretary and all executive officers of the Company, and of any related body corporate, against a liability incurred as a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

In addition, Rule 12 of the Company’s constitution obliges the Company to indemnify on a full indemnity basis and to the full extent permitted by law, every director, officer or former officer for all losses or liabilities incurred by the person as an officer. This obligation continues after the person has ceased to be a director or an officer of the Company or a related body corporate, but operates only to the extent that the loss or liability is not covered by insurance.

The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company, or any related body corporate, against a liability incurred as an officer or auditor.

Directors’ Meetings

The following table sets out the number of directors’ meetings held during the financial year and the number of meetings attended by each director.

Reckon Limited – Attendance Tables	Reckon Limited – Attendance Tables
Directors	Board	Audit &	Meeting Risk Committee	Remuneration Committee
A	B	A	B	A	B
JM Thame 11 I Ferrier 11 GJ Wilkinson 11 C Rabie 11	11 11 9 11	2 2 2 n/a	2 2 2 n/a	2 2 2 n/a	2 2 2 n/a

Non-Audit Fees

Details of the non-audit services can be found in Note 4 to the financial statements.

The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001.

The directors are of the opinion that the services as disclosed in Note 4 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit & Risk Committee, for the following reasons:

all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and
none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the company or jointly sharing economic risks and rewards.

On behalf of the directors

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Mr J Thame Chairman Sydney, 25 March 2013.

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Corporate Governance Report

The Company is committed to a system of relationships, policies and processes which align with the ASX Corporate Governance Principles and Recommendations, 2nd Edition (“the ASX Governance Principles”) and the 2010 Amendments. It is a priority of the Board to ensure the Company’s governance framework and support processes uphold these principles.

The Board is of the opinion that the Company’s existing policies and processes effectively achieve the objectives of the relevant Recommendations. The few departures from the Recommendations in the ASX Governance Principles are generally justified on the basis that the formal requirements of the Recommendations are not applicable to the size of the Company and the resources available. Where appropriate, the Board seeks opportunities to adopt these Recommendations to suit the circumstances of the Company and continue to improve the Company’s governance policies and processes.

The Board’s Corporate Governance policies can be viewed by clicking the ‘Investor Relations’ link from the Company’s website www.reckon.com.au

1. Management and Oversight

The Company is governed on behalf of the shareholders by its Board of Directors who in turn oversee the Company’s management team. The responsibilities and duties of the Board are set out in the Constitution. The Board is responsible for ensuring appropriate risk management, accountability and control mechanisms. The Board also provides advice and input into development of the businesses generally, overall corporate strategy, performance objectives, and appointment of senior executives. The Board monitors and reviews the performance of the Company, financial reporting and implementation of strategy. The Board approves the annual budget, material capital expenditure and large acquisitions.

The Company has adopted each of the Recommendations relating to Principle 1 of the ASX Governance Principles, except for the requirement in Recommendation 1.1, only to the extent that there is no formal charter. The Board is of the opinion, given the relatively small size of the composition of the Board, the relatively flat structure of management, the size of the management team and open and frequent channels of communication between management and the Board, that there is adequate definition and understanding of the functions and responsibilities of the Board and management. The Board maintains sufficiently close oversight of operations and has close input to material decisions to ensure compliance with principles of good corporate governance. The Board recognises that with the growth and evolution of the Company, it is important to review the division of matters and responsibilities reserved to the Board.

The Board is able to efficiently deal with issues which, in other larger enterprises, may normally be delegated to committees because of the size of the Company and the management team. The Audit & Risk Committee and Remuneration Committee are the only committees of the Board.

The Company undertakes an annual performance evaluation of key management personnel. The nature of the review process is as follows:

In the case of key management personnel other than head of divisions the review process is managed and administered by the Group Human Resources Manager. It generally involves a review and assessment of the performance of relevant executives and managers against key performance indicators. This process may also take into include feedback from peers where relevant and the Division CEOs and the relevant executive or manager. Where applicable, remedial steps and coaching are implemented. There may be further additional reviews undertaken through the year if necessary.

In the case of heads of divisions and head office management (CFO, General Counsel and Company Secretary) the review process is managed and administered by the Group Chief Executive Officer. The review involves a one-on-one interview in which performance against key performance indicators is assessed and discussed and feedback from peers (where relevant) is reviewed. Where necessary, remedial steps are identified and coaching is implemented. There may be additional reviews undertaken through the year if necessary.

In addition, a portion of remuneration for key management personnel is tied into the financial performance of the Company as set out in more detail in the Remuneration Report. Performance evaluation for key management personnel was undertaken in 2012 and it was in accordance with the processes disclosed in this report.

The independent non-executive directors also generally informally monitor and review the ongoing performance of senior executives.

The Group Human Resources Manager is also responsible for managing and administering an induction process for newly appointed senior executives. In addition the Group CEO and divisional CEOs are also involved in the briefing of new senior executives.

2. The Board

At present, the Board comprises four members: John Thame, Ian Ferrier, Greg Wilkinson and Clive Rabie. Mr Thame is Chairman of the Board and he, together with Mr Ferrier, are independent non-executive directors. Further details of the directors, including a summary of their skills and experience and period of office, are set out in the Directors’ Report.

The Company has adopted each of the Recommendations relating to Principle 2 of the ASX Governance Principles, except for the requirement in Recommendation 2.1 and 2.4 due to the size and circumstances of the Board. However in the opinion of the Board, the existing structure and processes are appropriate for the Company and still meet the objectives of the Recommendations and Principle 2. While there is not strictly an independent majority in the sense described in Recommendation 2.1, as there are only four directors, the non-executive directors ensure that all issues that come before the Board are considered in an impartial manner and from a variety of perspectives and meet the objectives of Recommendation 2.1. Mr Wilkinson, although still a substantial shareholder, has occupied a non-executive position for more than three years since he resigned from the management of the Company. The Chairman, who is independent, has a casting vote where necessary. The independent non-executive directors oversee the nomination of any potential directors.

The criteria for directorship and the election process are set out in the Company’s constitution. The size of the Board dictates that there is no efficiency obtained in establishing a formal nomination committee. Accordingly, the Company departs from this requirement in Recommendation 2.4.

The directors periodically review the composition of the Board to ensure that members have the desired breadth of experience, skills and expertise to govern the Company effectively. When considering nominees for any future candidates for the Board, the directors will take appropriate steps to ensure that it considers a broad range of candidates to ensure that the Company has the benefit of the appropriate mix of experience, skills and diversity in its decision making for the best interests of the Company as a whole.

Directors are entitled to seek independent professional advice at the Company’s expense to assist them in fulfilling their duties in order to comply with all applicable laws and regulations. There is no formal procedure for the Board to agree when to take independent advice at the expense of the Company, but given the size of the Board there is no efficiency to be obtained in formalising this process. The independent non-executive directors exercise their

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continued Corporate Governance Report

judgment to call for such advice when they deem appropriate. The Chairman also has frequent contact with internal legal counsel to assess the need for external advice.

The Board met eleven times during 2012. The details of attendance at these meetings are set out in the Directors’ Report. The independent non-executive directors monitor and review the ongoing performance of the executive directors and key executives. The independent non-executive directors occasionally meet informally without management being present to generally discuss the affairs of the Company and the overall performance of key executives.

The independent non-executive directors are subject to the Company’s constitution and their continuity of tenure is dependent on re-election by shareholders in accordance with the constitution. Any decision regarding the appointment of new directors is taken cognisant of the need to appoint someone who, taking into account the mix of skills, experience and perspective of the other directors, is appropriately qualified and as far as possible familiar with the Company’s market sector.

While there is no formal induction process in place, the Chairman, Deputy Chairman and Group CEO undertake a rigorous process of briefing new board members.

Given the size of the Company there is also direct informal communication on a regular basis between the Chairman and the Company Secretary on governance matters.

3. Ethical and Responsible Decision Making

The Company’s governance policies and processes incorporate all the Recommendations relating to Principle 3 of the ASX Governance Principles.

The Board’s policy is that the Company, the directors and employees in addition to their legal obligations must maintain high ethical standards in their dealings with the public and other members of the industry.

The Company’s Human Resources Policy and Procedures, binding on all employees, also collectively embraces the substance of the ASX Governance Principles in a Code of Conduct, including expectations regarding behaviour in the workplace, disciplinary processes, grievance processes, discrimination and harassment, occupational health and safety, ethical business practices, conflict of interest and corporate opportunity. The Company is committed to training employees and maintaining employees’ relevant technical expertise and understanding of their ethical and legal obligations, for example by way of trade practices training from time to time for relevant staff.

The Company recognises that diversity and inclusiveness is a critical aspect of effective management of its people and their contributions to the success of the Company. This diversity is reflected in the differences in gender, race, age, culture, education, family or carer status, religion and disability which is found across the Company, its employees, consultants and contractors.

Based on the profile of executive, management and employees in 2011 used to benchmark the current status of diversity as to gender, women continue to represent 29% of the employees in 2012. There are no female members of the Board or female senior executive managers.

As reported in 2011, the Board set key measurable objectives and KPIs, to promote diversity in the Company, particularly as to gender: The Company continues to be committed to those objectives, which are:

To achieve greater representation of females in the Reckon Group, particularly in technical and supervisor/ manager roles.
To review policies and internal procedures to ensure they provide equitable, fair and flexible work practices, including consistency with the Company’s commitment to diversity, particularly gender diversity, in the organisation.

To implement training (in-house or external where relevant) to support a culture of diversity, for example: appropriate behaviour, harassment etc.
Development of a mentoring/succession program for all employees to encourage females to remain in the business.

The Company has measured its performance against these objectives in 2012. There has not been any significant percentage increase of females in technical roles. This is consistent with the Company’s overall recruiting needs for technical roles in 2012. The Company will again continue to seek a 5% increase on the 2011 numbers by December 2013.

The Company’s Diversity & Inclusion Policy Statement as approved by the Board on 15 December 2011 is published on the Company’s website.

4. Integrity in Financial Reporting

The Board assumes the responsibility to ensure the integrity of the Company’s financial reporting and has established the Audit & Risk Committee to focus on the issues relating to the integrity of the financial reporting of the Company and oversight and review of the Company’s risk management. The terms of reference for the Audit & Risk Committee, to review and monitor all financial, risk management and compliance policies, were formalised in a Charter in 2003 to meet the requirements of the ASX Governance Principles. The Audit & Risk Committee consists of John Thame and Ian Ferrier, independent, non-executive directors, as well as the non-executive director Greg Wilkinson, to ensure independent review of financial reporting over and above formal audit processes. Details of their experience and qualifications are set out in the Directors’ Report.

The Audit & Risk Committee also meets informally to discuss matters including risk management and reporting. With the appointment of Greg Wilkinson to the Audit & Risk Committee in February 2010, the Board is of the opinion that the structure of the Committee, together with its considerable technical expertise in the market sector of the Company and financial literacy, enables it to discharge it functions effectively and meet the objectives of Principle 4 and that the Company has fully adopted Recommendation 4.2.

Deloitte Touche Tohmatsu, the Company’s auditors, report directly to the Audit & Risk Committee on the appropriateness of the Company’s internal accounting policies and practices. The Board reviews the adequacy of existing external audit arrangements each year, with particular emphasis on the scope and quality of the audit. The Audit & Risk Committee provides written advice to the Board on the standard of independence of the auditors in light of any non-audit services during 2012 and which is reported in the Directors’ Report.

At each Audit & Risk Committee meeting, the independent non-executive directors meet separately with the auditors without management being present to review any concerns that the auditors may have regarding the financial management of the Company.

The Audit & Risk Committee met twice during 2012. The Audit & Risk Committee reports back to the Board after each Audit & Risk Committee meeting. The details of attendance at these meetings are set out in the Directors’ Report. The Board is aware of its obligations to ensure the appropriate selection and rotation of external auditors and the external audit engagement partners and closely monitors and reviews the engagement of the Company’s external auditors.

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continued Corporate Governance Report

5. Timely and Balanced Disclosure

The Company has adopted each of the Recommendations relating to Principle 5 of the ASX Governance Principles. The Board remains conscious of the Company’s disclosure obligations under the Corporations Act, the ASX listing rules and the ASIC guidance principles. These obligations are reflected in the Continuous Disclosure Policy. All required disclosures are also made in accordance with the Continuous Disclosure policy which is accessible to the public at the Company website. A review of operations and commentary on the financial results is provided in the Directors’ Report and the Financial Report.

6. Rights of Shareholders

The Board is conscious of the requirements of Principle 6 of the ASX Governance Principles and takes into account the rights and needs of shareholders to balanced and understandable information about the Company and acts in accordance with this Principle. The Company communicates with shareholders through its ASX disclosures to the market.

The Company also communicates with shareholders through the posting of statutory notices to shareholders and at the general and special meetings of the Company. The Company keeps recent announcements and general Company information on its web site with a dedicated investor relations section which is accessible to the public. The web site contains a link to the ASX web site for older announcements. Given the size and circumstances of the Company, there is no formally documented communications strategy, and in this respect the Company has not adopted Recommendation 6.1.

The Company’s auditor attends the Annual General Meeting and is available to answer shareholder questions about the conduct of the audit and the preparation and content of the Auditor’s Report at the meeting.

7. Recognise and Manage Risk

As stated above in paragraph 1, the Board is responsible for ensuring appropriate risk management, accountability, and control mechanisms. It constantly monitors the operational and financial aspects and material risks of the Company’s activities and, through the Audit & Risk Committee, considers the recommendations and advice of the auditors and other external advisers on the operational and financial risks that face the Company. The Group CEO and Group CFO monitor and review the financial performance of the Company and monitor any potential risk virtually on a daily basis. The Board has received assurance from the CEO and the CFO that the s295A Declaration provided in the Financial Report is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. The Board is of the opinion that there is substantial compliance with the ASX Governance Principle 7 although Recommendations 7.1 and 7.2 have not yet been fully adopted.

As described above, the size of the Company and the management team enables the Board to have effective oversight of the overall risk management of the Company. In the Board’s opinion, especially with the existence of an Audit & Risk Committee, there is no efficiency for the Company to establish a separate risk management committee.

The Board is provided with a declaration from the Group CEO and the Group CFO under section 295A of the Corporations Act, that due consideration is given to budgets, cash flows, realisation of current assets, continuity of terms of trade, and consideration of contingencies in the day to day operations of the Company and in the monthly management financial reporting and statutory reporting of the Company.

At present the nature of operations and scope of the business is reasonably well established and understood by management and the Board. The decision making and reporting processes in the Company incorporate an assessment of the relevant material risks, for example in the planning, budget, HR, product development, R&D, legal and compliance activities and, where relevant, any material risk issues are reported to and considered by the Board. The planning and budget process involves both the executive and senior management, which means all of these employees have a more than adequate understanding of the issues, activities and opportunities across the Company. In turn this enables them to manage operational, planning, strategic and risk issues in the Company. In addition, the Company regularly conducts reviews of the material risks in the context of the annual insurance renewals and, in relation to acquisitions through due diligence. Relevant risk factors are included in the various management and financial reports to the Board and are then considered by the Board. The reporting, identification and management of risk are now effectively a standing board agenda item.

Due to the effectiveness of the existing processes and the size of the business, business risk management systems, policies and procedures have not been comprehensively formalised. With a view to fully adopting Recommendations 7.1 and 7.2, the Company’s risk management systems, policies and processes are under consideration to be formalised and documented, if necessary.

8. Remunerate Fairly and Responsibly

The Company remunerates directors and key executives in accordance with the aspirations set out in ASX Governance Principle 8. Accordingly, the Board has adopted a remuneration policy designed to attract and maintain talented and motivated directors and senior employees so as to encourage enhanced performance of the Company. There is a clear relationship between performance and remuneration and a desire to strike the correct balance between the various components making up remuneration. The Remuneration Committee consists of the independent, non-executive directors, John Thame and Ian Ferrier and non-executive director Greg Wilkinson. Details of their experience and qualification are set out in the Directors’ Report. The Remuneration Committee ensures independent review of financial reporting over and above formal audit processes. The Remuneration Committee supervises the development and implementation of the Company’s remuneration policy including the operation of option plans, and reviews the performance of the executive directors and senior executives. There is no formal charter for the Remuneration Committee, but it does fix policy and reward in accordance with ASX Governance Principle 8. The full detail of the policy and remuneration is contained in the Remuneration Report. The Remuneration Committee met twice during 2012. The details of attendance at these meetings are set out in the Directors’ Report.

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Deloitte Touche Tohmatsu ABN 74 490 121 060

Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

25 March 2013

The Board of Directors Reckon Limited Level 12 65 Berry Street North Sydney NSW 2060

RECKON LIMITED

Dear Board Members

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Reckon Limited.

As lead audit partner for the audit of the financial statements of Reckon Limited for the financial year ended 31 December 2012, I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

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DELOITTE TOUCHE TOHMATSU

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Michael Kaplan Partner Chartered Accountants

Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited

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Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia

DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au

Independent Auditor’s Report to the Members of Reckon Limited

Report on the Financial Report

We have audited the accompanying financial report of Reckon Limited, which comprises the consolidated statement of financial position as at 31 December 2012, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 33 to 87.

Directors’ Responsibility 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 is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the financial statements comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited

continued Auditor’s Report

Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001 , which has been given to the directors of Reckon Limited, would be in the same terms if given to the directors as at the time of this auditor’s report.

Opinion

In our opinion:

(a) the financial report of Reckon Limited is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2012 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and

(b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1.

Report on the Remuneration Report

We have audited the Remuneration Report included in pages 14 to 21 of the directors’ report for the year ended 31 December 2012. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

Opinion

In our opinion, the Remuneration Report of Reckon Limited for the year ended 31 December 2012, complies with section 300A of the Corporations Act 2001 .

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DELOITTE TOUCHE TOHMATSU

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Michael Kaplan Partner Chartered Accountants Sydney, 25 March 2013

Financial Report

Directors’ Declaration

The Directors of the company declare that:

the financial statements and notes as set out on pages 34 to 87, are in acc ordance with the Corporations Act 2001, and:
comply with Accounting Standards; and
comply with International Financial Reporting Standards, as stated in Note 1 to the fina ncial statements; and
give a true and fair view of the financial position as at 31 December 2012 and of the performance for the year ended on that date of the consolidated Group;
the Chief Executive Officer and the Chief Finance Officer have each declared that:
the financial records of the company for the financial year have been properly maintained in accordance with s 286 of the Corporations Act 2001;
the financial statements and notes for the financial year comply with the Accounting Standards, and
the financial statements and notes for the financial year give a true and fair view;
in the Directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors pursuant to Section 295(5) of the Corporations Act 2001.

On behalf of the Directors

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Mr J Thame Chairman

Sydney, 25 March 2013

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Consolidated Income Statement

for the year ended 31 December 2012

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----- Start of picture text -----

Note Consolidated
2012 2011
$’000 $’000
Continuing operations
Revenue 2 96,765 90,730
Product and selling costs (17,109) (14,617)
Royalties (5,322) (4,783)
Employee benefits expenses (28,520) (27,349)
Share-based payments expenses (304) (702)
Marketing expenses (2,175) (2,197)
Premises and establishment expenses (2,146) (2,261)
Depreciation and amortisation of other non-current assets (9,824) (8,552)
Telecommunications (907) (958)
Legal and professional expenses (798) (707)
Finance costs (311) (168)
Other expenses (4,745) (4,397)
-
Business acquisition costs (173)
Recovery of costs/Litigation settlement - 542
Net costs associated with premises relocation:
Estimated sub-lease rent shortfall (492) (1,796)
Leasehold improvement amortisation - (556)
Profit before income tax 23,939 22,229
Income tax expense 3 (6,172) (5,536)
Profit for the year 17,767 16,693
Profit attributable to:
Owners of the parent 23 17,342 16,062
Non-controlling interest 425 631
17,767 16,693
Earnings per share Cents Cents
Basic Earnings per Share 24 13.4 12.1
Diluted Earnings per Share 24 13.3 12.0
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The above consolidated income statement should be read in conjunction with the accompanying notes.

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2012

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----- Start of picture text -----

Note Consolidated
2012 2011
$’000 $’000
Profit for the year 17,767 16,693
Other comprehensive income, net of income tax
Fair value adjustment of equity instruments 22 247 (1,067)
Exchange difference on translation of foreign operations 22 186 (875)
Total other comprehensive income 433 (1,942)
Total comprehensive income 18,200 14,751
Total comprehensive income attributable to:
Owners of the parent 17,775 14,120
Non-controlling interest 425 631
18,200 14,751
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The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

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Consolidated Statement of Financial Position

as at 31 December 2012

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----- Start of picture text -----

Note Consolidated
2012 2011
$’000 $’000
ASSETS
Current Assets
Cash and cash equivalents 29 1,926 4,703
Trade and other receivables 6 8,795 6,730
Inventories 5 1,244 1,181
Other assets 7 2,695 1,763
Total Current Assets 14,660 14,377
Non-Current Assets
Receivables 6 1,391 777
Financial assets 8 56 6,257
Investment in joint venture entity 9 660 -
Property, plant and equipment 10 3,415 3,401
Deferred tax assets 11 141 86
Intangible assets 12 68,032 45,966
Total Non-Current Assets 73,695 56,487
Total Assets 88,355 70,864
LIABILITIES
Current Liabilities
Trade and other payables 13 4,922 4,184
Borrowings 14 10,994 -
Current tax payables 1,119 2,365
Provisions 16 3,341 4,788
Deferred revenue 8,674 6,295
Total Current Liabilities 29,050 17,632
Non-Current Liabilities
Borrowings 14 136 -
Other financial liabilities 15 10,608 -
Deferred tax liabilities 18 2,949 1,089
Provisions 16 1,194 1,647
Total Non-Current Liabilities 14,887 2,736
Total Liabilities 43,937 20,368
Net Assets 44,418 50,496
Equity
Issued capital 21 16,878 15,752
Reserves 22 (14,839) (2,080)
Retained earnings 23 42,379 36,621
Equity attributable to owners of the parent 44,418 50,293
Non-controlling interest 30 - 203
Total Equity 44,418 50,496
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The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

Consolidated Statement of Changes in Equity

for the year ended 31 December 2012

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----- Start of picture text -----

Acquisition
Foreign Share - of non - Attributable
Share currency based Asset controlling to owners Non -
Issued buyback translation payments revaluation Retained interest of the controlling
Consolidated capital reserve reserve reserve reserve earnings reserve parent interest Total
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $'000 $’000 $’000
Balance at 1 15,752 - (1,569) 556 (1,067) 36,621 - 50,293 203 50,496
January 2012
Profit for the year - - - - - 17,342 - 17,342 425 17,767
Other
comprehensive
income:
Fair value
adjustment of - - - - 247 - - 247 247
financial assets
Exchange
differences on
translation of - - 186 - - - - 186 - 186
foreign
operations
Total compre- - - 186 - 247 17,342 - 17,775 425 18,200
hensive income
Share based
payments - - - 248 - - - 248 - 248
expense
Share buyback - - - - - - -
(7,612) (7,612) (7,612)
(Note 21)
- - - - - -
Dividends paid (10,764) (10,764) (549) (11,313)
Treasury shares 301 - - (301) - - - - - -
vested/lapsed
Treasury shares - - - - - - -
(541) (541) (541)
acquired
Transfer to
retained - - - - 820 (820) - - - -
earnings
Transfer to
acquisition of - - - - - - 79 79 (79) -
non-controlling
interest reserve
Payment for
non-controlling
interest in - - - - - - -
(4,496) (4,496) (4,496)
nQueue Billback
subsidiaries
(Note 29(d))
Remeasurement
of Linden House - - - - - - -
(564) (564) (564)
option liability
(Note 15)
Transfer of prior - - - - - - - -
1,366 (1,366)
year buyback
Balance at 31 16,878 (8,978) (1,383) 503 - 42,379 (4,981) 44,418 - 44,418
December 2012
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The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated Statement of Changes in Equity

continued

for the year ended 31 December 2012

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----- Start of picture text -----

Foreign Share - Attributable
Share currency based Asset to owners Non -
Issued buyback translation payments revaluation Retained of the controlling
Consolidated capital reserve reserve reserve reserve earnings parent interest Total
$’000 $’000 $’000 $’000 $’000 $’000 $'000 $’000 $’000
Balance at 1 18,048 - (694) 631 - 31,156 49,141 - 49,141
January 2011
Profit for the year - - - - - 16,062 16,062 631 16,693
Other compre-
hensive income:
Fair value
- - - - - -
adjustment of (1,067) (1,067) (1,067)
financial assets
Exchange
differences on
translation of - - (875) - - - (875) - (875)
foreign
operations
Total compre- - - (875) - (1,067) 16,062 14,120 631 14,751
hensive income
Share based
payments - - - 375 - - 375 - 375
expense
- - - - - -
Share buyback (1,366) (1,366) (1,366)
- - - - -
Dividends paid (10,597) (10,597) (428) (11,025)
Treasury shares 450 - - (450) - - - - -
vested/lapsed
Treasury shares - - - - - -
(1,389) (1,389) (1,389)
acquired
Contributions of
equity, net of 9 - - - - - 9 - 9
transaction costs
Balance at 31 15,752 - (1,569) 556 (1,067) 36,621 50,293 203 50,496
December 2011
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The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated Statement of Cash Flows

for the year ended 31 December 2012

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----- Start of picture text -----

Note Consolidated
Inflows / (outflows)
2012 2011
$’000 $’000
Cash Flows From Operating Activities
Receipts from customers 104,956 99,864
Payments to suppliers and employees (74,288) (68,724)
Dividends received 100 280
Interest received 59 206
Interest paid (311) (168)
Income taxes paid (6,488) (4,639)
Net cash inflow from operating activities 29(b) 24,028 26,819
Cash Flows From Investing Activities
-
Payment for purchase of business, net of cash acquired 29(c) (8,511)
-
Payment for non-controlling interest (net) 29(d) (4,496)
Payment for investment in joint venture entity 9 (660) -
-
Payments for purchase of intellectual property (35)
Payment for capitalised development costs (9,616) (7,350)
Payment for property, plant and equipment (1,371) (1,756)
-
Payment for investment 8 (7,268)
-
Proceeds from sale of investment 8 6,448
Net cash outflow from investing activities (18,206) (16,409)
Cash Flows From Financing Activities
Proceeds from issues of equity securities - 9
Proceeds from/(repayment of) borrowings 10,484 (2)
-
Payment for other financial liabilities (124)
Payment for share buyback 21 / 22 (7,612) (1,366)
Payment for treasury shares 21 (541) (1,389)
Dividends paid to owners of the parent 31 (10,764) (10,597)
Non-controlling interest dividends paid (549) (428)
Net cash outflow from financing activities (9,106) (13,773)
Net Increase/(Decrease) in cash and cash equivalents (3,284) (3,363)
Cash and cash equivalents at the beginning of the financial year 4,703 8,095
Effects of exchange rate changes on cash and cash equivalents 13 (29)
Cash and cash equivalents at the end of the financial year 29(a) 1,432 4,703
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The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

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for the year ended 31 December 2012

Notes to the Financial Statements

1 Summary of Significant Accounting Policies

The principal accounting policies adopted in the preparation of the financial report are set out below. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year. The financial report includes the consolidated entity consisting of Reckon Limited and its subsidiaries. For the purposes of preparing the consolidated financial statements, the company is a for-profit entity.

Basis of preparation

This general purpose financial report has been prepared in accordance with Australian Accounting Standards and Interpretations and the Corporations Act 2001, and complies with the other requirements of the law.

Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the consolidated financial statements and notes of Reckon Limited, comply with International Financial Reporting Standards (IFRSs).

The financial statements were authorised for issue by the directors on 25 March 2013.

The financial report has been prepared in accordance with the historical cost convention, except for the revaluation of certain non-current assets and financial instruments. Historical cost is generally based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars unless otherwise noted. The parent entity has applied the relief available to it under ASIC Class Order 98/100, and accordingly, amounts in the financial report have been rounded off to the nearest thousand dollars, except where otherwise indicated.

Early adoption of Accounting Standards

The directors have elected under s.334(5) of the Corporations Act 2001 to apply Accounting Standard AASB 9 ‘Financial Instruments’ for this financial year, even though the Standard is not required to be applied until annual reporting periods beginning on or after 1 January 2015. Investments in equity instruments, which were previously classified as available for sale financial assets, are from 1 January 2012 irrevocably classified as equity instruments revalued through other comprehensive income. They continue to be valued at fair value with changes to value being recognised in asset revaluation reserve (previously available for sale asset revaluation reserve). Realised gains/losses are not recycled to net profits as was previously required under AASB 139. The adoption of AASB 9 has no effect on the comparative Statement of Financial Position, Statement of Comprehensive Income or Income Statement.

Significant Accounting Policies

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Income and expense of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation.

continued 1 Summary of Significant Accounting Policies

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.

(b) Business Combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with AASB 112 ‘Income Taxes’; and
liabilities or equity instruments related to share-based payment arrangements of the acquiree or sharebased payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with AASB 2 ‘Share-based Payment’ at the acquisition date.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the noncontrolling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard.

Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

Where a business combination involves the issuance of a put option granted to the vendor in respect of an equity interest not owned by the parent, the present value of the put exercise price is recognised as a financial liability in the consolidated accounts of the parent entity. The recognition of this liability effectively treats the option as if it has been exercised, constituting a transaction between owners as owners which is recorded in equity. Any subsequent re-measurement is considered to be part of the equity transaction and is recorded in equity via an “acquisition of non-controlling interest reserve”.

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Notes to the Financial Statements continued

continued 1 Summary of Significant Accounting Policies

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

The results and assets and liabilities of the jointly controlled entity are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’. Under the equity method, an investment in a jointly controlled entity is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the jointly controlled entity. When the Group’s share of losses of a jointly controlled entity exceeds the Group’s interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entity.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the jointly controlled entity recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in the jointly controlled entity. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136 ‘Impairment of Assets’ as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases.

Upon disposal of a jointly controlled entity that results in the Group losing significant influence over that jointly controlled entity, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with AASB 139. The difference between the previous carrying amount of the jointly controlled entity attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the jointly controlled entity. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that jointly controlled entity on the same basis as would be required if that jointly controlled entity had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that jointly controlled entity would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses significant influence over that jointly controlled entity.

When a Group entity transacts with the jointly controlled entity, profits and losses resulting from the transactions with the jointly controlled entity are recognised in the Group’s consolidated financial statements only to the extent of interests in the jointly controlled entity that are not related to the Group.

continued 1 Summary of Significant Accounting Policies

(d) Depreciation and Amortisation

Depreciation is provided on plant and equipment. Depreciation is calculated on a straight-line basis. Leasehold improvements are amortised over the period of the lease or the estimated useful life, whichever is the shorter, using the straight-line method. The following estimated useful lives are used in the calculation of depreciation and amortisation:

Plant and equipment 3 - 5 years Leasehold improvements 3 - 7 years

(e) Trade Payables

These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. These amounts are unsecured and are usually paid within 30 days of the month of recognition.

(f) Contributed Equity

Transaction Costs on the Issue of Equity Instruments

Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.

(g) 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 operates (“the functional currency”). The consolidated financial statements are presented in Australian dollars, which is Reckon Limited’s functional and presentation currency.

Transactions and balances

All foreign currency transactions during the financial year have been brought to account in the functional currency using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at that date. Exchange differences are brought to account in the profit or loss in the period in which they arise.

Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency of the consolidated entity as follows:

Assets and liabilities are translated at the closing rate at the date of the statement of financial position;
Income and expenses are translated at average rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
All resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of monetary items forming part of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken directly to reserves. When a foreign operation is sold, a proportionate share of such exchange differences are recognised in profit or loss as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity at the closing rate.

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Notes to the Financial Statements continued

continued 1 Summary of Significant Accounting Policies

(h) Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or

ii. for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

(i) Intangible assets

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of the acquisition of the business less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the cashgenerating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss in the consolidated income statement. An impairment loss recognised for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Intellectual Property

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Customer contracts are amortised on a straight line basis over their useful life to the Group of ten years.

Brand names are not amortised but are subject to annual impairment testing. The Group has committed to continually use, invest in and promote acquired brands, therefore brands have been assessed to have an indefinite life.

Research and development costs

Research expenditure is recognised as an expense when incurred.

An internally-generated intangible asset arising from development is recognised if, and only if, all of the following have been demonstrated:

the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.

continued 1 Summary of Significant Accounting Policies

Development costs in respect of enhancements on existing suites of software applications are capitalised and written off over a 3 to 4 year period. Development costs on technically and commercially feasible new products are capitalised and written off on a straight line basis over a period of 3 to 4 years commencing at the time of commercial release of the new product.

Development costs include cost of materials, direct labour and appropriate overheads.

At each balance date, a review of the carrying value of the capitalised development costs being carried forward is undertaken to ensure the carrying value is recoverable from future revenue generated by the sale of that software.

(j) Income Tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities, and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to those temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. All deferred tax liabilities are recognised.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

The company and its wholly-owned Australian resident entities have formed a tax-consolidated group and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Reckon Limited. Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate financial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the company (as head entity in the tax-consolidated group). Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by the company and each member of the group in relation to the tax contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated group in accordance with the arrangement.

The tax sharing agreement entered into between members of the tax-consolidated group provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or if an entity should leave the tax-consolidated group. The effect of the tax sharing agreement is that each member’s liability for tax payable by the tax consolidated group is limited to the amount payable to the head entity under the tax funding arrangement.

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Notes to the Financial Statements continued

continued 1 Summary of Significant Accounting Policies

(k) Inventories

Inventories are stated at the lower of cost and net realisable value. Costs are assigned to inventory on hand on a weighted average cost basis.

(l) Leased Assets

A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incident to ownership of leased assets, and operating leases under which the lessor effectively retains substantially all the risks and benefits.

Operating lease payments are recognised on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. Lease incentives are initially recognised as a liability and are amortised over the term of the lease on a straight line basis.

(m) Employee Benefits

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave, when it is probable that settlement will be required and they are capable of being measured reliably.

Provisions made in respect of wages and salaries, annual leave, and other employee entitlements expected to be settled within 12 months are measured at the amounts expected to be paid when the liabilities are settled.

Provisions made in respect of long service leave which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.

The Group recognises a liability and an expense for the long-term incentive plan for selected executives based on a formula that takes into consideration the ranking of total shareholder return measured against a comparator group of companies.

Contributions are made by the Group to defined contribution employee superannuation funds and are charged as expenses when incurred.

(n) Receivables

Trade receivables and other receivables are recorded at amortised cost, less impairment.

(o) Impairment of assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

continued 1 Summary of Significant Accounting Policies

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

When an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(p) Revenue Recognition

Sale of Goods and Disposal of Assets

Revenue from the sale of goods and disposal of other assets is recognised when the consolidated entity has passed control of the goods or other assets to the buyer, the fee is fixed or determinable and collectability is probable.

Software licence fee revenue is recognised at the point of “go live” (i.e. when all users can use the system on a fully functional basis).

Rendering of Services

Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract or on a time and materials basis depending upon the nature of the contract.

Support and maintenance revenue is recognised on a straight-line basis over the period of the contract.

In multiple element arrangements where goods and services are sold as a bundled product, the fair value of the services component is recognised as revenue over the period during which the service is performed.

Interest and Other Revenue

Interest revenue is recognised on a time proportional basis taking into account the effective interest rates applicable to the financial assets. Other revenue is recognised when the right to receive the revenue has been established.

(q) Deferred Revenue

Revenue earned from maintenance and support services provided on sales of certain products by the consolidated entity are deferred and then recognised in profit or loss over the contract period as the services are performed, normally 12 months. Refer Note 1(p) for further detail.

(r) Earnings per share

Basic earnings per share is determined by dividing net profit after income tax attributable to members of the Company by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

Diluted earnings per share adjusts the figures in the determination of basic earnings per share by taking into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of dilutive potential ordinary shares.

(s) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and bank overdrafts.

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Notes to the Financial Statements continued

continued 1 Summary of Significant Accounting Policies

(t) Financial instruments
Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets are classified into the following specified categories: financial assets at amortised cost (including loans and receivables), financial assets ‘at fair value through profit or loss’ (FVTPL), and financial assets at ‘fair value through other comprehensive income’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL. A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling it in the near term; or
on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘other gains and losses’ line item in the statement of comprehensive income/income statement.

Investments in equity instruments, which were previously classified as available for sale financial assets, are from 1 January 2012 irrevocably classified as equity instruments revalued through other comprehensive income. Quoted shares held by the Group that are traded in an active market are classified as fair value through other comprehensive income and are stated at fair value. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the asset revaluation reserve. They continue to be valued at fair value with changes to value being recognised in the asset revaluation reserve (previously available for sale asset revaluation reserve). Realised gains/losses are not recycled to net profits as was previously required under AASB 139.

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts

continued 1 Summary of Significant Accounting Policies

estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the statement of comprehensive income/income statement.

Other financial liabilities, including borrowings and trade and other payables, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

(u) Provisions

Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that the outflow can be reliably measured.

(v) Fair Value estimation

The fair value of financial instruments and share based payments that are not traded in an active market is determined using appropriate valuation techniques. The Group uses a variety of methods and assumptions that are based on existing market conditions. The fair value of financial instruments traded on active markets (quoted shares), are based on balance date bid prices.

The Directors consider that the nominal value less estimated credit adjustments of trade receivables and payables approximate their fair values.

(w) Significant accounting judgments, estimates and assumptions

Significant accounting judgments

In applying the Group’s accounting policies, management has made the following judgments which have the most significant effect on the financial statements:

Capitalisation of development costs – The Group has adopted a policy of capitalising development costs only for products for which an assessment is made that the product is technically feasible and will generate definite economic benefits for the Group going forward. The capitalised costs are subsequently amortised over the expected useful life of the product.

Revenue recognition – In multiple element arrangements where goods and services are sold as a bundled product, the fair value of the services is recognised as revenue over the period during which the service is performed.

Consolidation of Linden House – Linden House has been consolidated on the basis of the existence of a substantive call option, which is exercisable at acquisition date, and which enables Reckon Limited to acquire the remaining interest in the company.

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continued 1 Summary of Significant Accounting Policies

Significant accounting estimates and assumptions

The carrying amount of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of certain assets and liabilities are:

Impairment of goodwill – The Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the recoverable amount of the cash-generating unit to which the goodwill is allocated. The assumptions used in this estimation, and the effect if these assumptions change, are disclosed in Note 12.

Share based payments – The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date on which they are granted. The fair value has been determined using a model that adopts Monte Carlo simulation approach, and the assumptions related to this can be found in Note 20.

Product life and amortisation – The Group amortises capitalised development costs based on a straight line basis over a period of 3-4 years commencing at the time of commercial release of the new product. This is the assessed useful life.

Surplus lease space – The Group provides for surplus lease space based on an estimate of the income expected to be generated taking into consideration market conditions relating to rental yields and vacancy periods. Further details are set out in Note 16.

Other financial liabilities – The Group has recognised as a liability the fair value of an option instrument arising in connection with a business acquisition. Fair value determination is based on assumptions relating to future profitability of the acquired business and market discount rates. The chosen valuation techniques and assumptions used are believed to be appropriate in determining the fair value of financial instruments. Further details are set out in Notes 15 and 29.

continued 1 Summary of Significant Accounting Policies

(x) New accounting standards not yet effective
At the date of authorisation of the financial report, a number of Standards and Interpretations were in issue but not yet effective.

Initial application of the following Standards will not affect any of the amounts recognised in the financial report, but may change the disclosures presently made in relation to the financial report.

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Effective for annual Expected to be
reporting periods initially applied in the
Standard/Interpretation beginning on or after financial year ending
AASB 5 ‘Non-current Assets Held for Sale and Discontinued
1 July 2012 31 December 2013
Operations’
AASB 7 ‘Financial Instruments: Disclosures’ 1 July 2012 31 December 2013
AASB 10 ‘Consolidated Financial Statements’, AASB 2011-7
‘Amendments to Australian Accounting Standards arising from the 1 January 2013 31 December 2013
Consolidation and Joint Arrangements Standards’
AASB 11 ‘Joint Arrangements’, AASB 2011-7 ‘Amendments to
Australian Accounting Standards arising from the Consolidation 1 January 2013 31 December 2013
and Joint Arrangements Standards’
AASB 12 ‘Disclosure of Interests in Other Entities’, AASB 2011-7
‘Amendments to Australian Accounting Standards arising from the 1 January 2013 31 December 2013
Consolidation and Joint Arrangements Standards’
AASB 13 ‘Fair Value Measurement’ and AASB 2011-8
‘Amendments to Australian Accounting Standards arising from 1 January 2013 31 December 2013
AASB 13’
AASB 119 ‘Employee Benefits’(2011) and AASB 2011-10
‘Amendments to Australian Accounting Standards arising from 1 January 2013 31 December 2013
AASB 119 (2011)’
AASB 120 ‘Accounting for Government Grants and Disclosure of
1 July 2012 31 December 2013
Government Assistance’
AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’ 1 July 2012 31 December 2013
AASB 127 ‘Separate Financial Statements’ (2011), AASB 2011-7
‘Amendments to Australian Accounting Standards arising from the 1 January 2012 31 December 2013
Consolidation and Joint Arrangements Standards’
AASB 128 ‘Investments in Associates and Joint Ventures’(2011),
AASB 2011-7 ‘Amendments to Australian Accounting Standards 1 January 2013 31 December 2013
arising from the Consolidation and Joint Arrangements Standards’
AASB 132 ‘Financial Instruments: Presentation’ 1 July 2012 31 December 2013
AASB 133 ‘Earnings per Share’ 1 July 2012 31 December 2013
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Notes to the Financial Statements continued

continued 1 Summary of Significant Accounting Policies

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Effective for annual Expected to be
reporting periods initially applied in the
Standard/Interpretation beginning on or after financial year ending
AASB 134 ‘Interim Financial Reporting’ 1 July 2012 31 December 2013
AASB 2011-4 ‘Amendments to Australian Accounting Standards to
Remove Individual Key Management Personnel Disclosure 1 July 2013 31 December 2013
Requirements’
AASB 2011-9 ‘Amendments to Australian Accounting Standards
1 July 2012 31 December 2013
– Presentation of Items of Other Comprehensive Income’
AASB 2012-2 ‘Amendments to Australian Accounting Standards
1 January 2013 31 December 2013
– Disclosures – Offsetting Financial Assets and Financial Liabilities’
AASB 2012-3 ‘Amendments to Australian Accounting Standards
1 January 2014 31 December 2014
– Disclosures – Offsetting Financial Assets and Financial Liabilities’
AASB 2012-5 ‘Amendments to Australian Accounting Standards
1 January 2013 31 December 2013
arising from Annual Improvements 2009-2011 Cycle’
AASB 2012-10 ‘Amendments to Australian Accounting Standards
1 January 2013 31 December 2013
– Transition Guidance and Other Amendments’
Interpretation 20 ‘Stripping Costs in the Production Phase of a
Surface Mine’ and AASB 2011-12 ‘Amendments to Australian 1 January 2013 31 December 2013
Accounting Standards arising from Interpretation 20’
At the date of authorisation of the financial statements, the following IASB was also in issue but not effective,
although an Australian equivalent Standard has not yet been issued:
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) 1 January 2014 31 December 2014
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Consolidated
2012 2011
$’000 $’000
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2 Profit for the Year

Profit before income tax includes the following items of revenue and expense:

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Revenue
Sales revenue
Sale of goods and rendering of services 96,606 90,244
Other Revenue
Dividend income 100 280
Interest revenue – Bank deposits 59 206
159 486
96,765 90,730
Expenses
Cost of Sales 22,431 19,400
Bad debt expense:
Other entities 48 25
Finance costs expensed:
Bank loans and overdraft 311 168
Net transfers to/(from) provisions:
Sales returns and rebates (121) 2
Employee benefits (917) (165)
Allowance for doubtful debts 23 (62)
Depreciation of non-current assets:
Property, plant and equipment 996 1,034
Amortisation of non-current assets:
Leasehold improvements 527 477
Intellectual property 1,018 989
Development costs 7,282 6,052
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Notes to the Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
continued
2 Profit for the Year
Foreign exchange losses/(gains) 69 26
Employee benefits expense:
Post employment benefits – defined contribution plans 2,283 2,198
Termination benefits 25 306
Share based payments:
Equity-settled share-based payments 248 375
Cash-settled share-based payments 56 327
304 702
Research and development costs written off 1,190 2,328
Operating lease rental expenses:
Minimum lease payments 1,906 1,949
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Consolidated
2012 2011
$’000 $’000
3 Income Tax
(a) Income tax expense recognised in profit and loss
Current tax 5,470 6,390
Deferred tax 930 (548)
Under /(over) provided in prior years (228) (306)
6,172 5,536
(b) The prima facie income tax expense on pre-tax accounting profit reconciles to the
income tax expense/(income tax revenue) in the financial statements as follows:
Profit before income tax 23,939 22,229
Income tax expense calculated at 30% of profit 7,182 6,669
Tax Effect of:
Effect of higher tax rates on overseas income 25 42
Tax effect of non-deductible/non-taxable items:
Non-controlling interest component (81) (162)
Research and development claims (595) (608)
Sundry items (131) (99)
6,400 5,842
Under/(over) provision in prior years (228) (306)
Income tax expense attributable to profit 6,172 5,536
(c) Future income tax benefits not brought to account as an asset:
not probable of recovery
Tax losses:
Revenue - -
Capital 2,507 2,295
2,507 2,295
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Notes to the Financial Statements continued

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Consolidated
2012 2011
$ $
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4 Remuneration of Auditors

(a) Deloitte Touche Tohmatsu

During the year, the auditors of the parent entity earned the following remuneration:

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Auditing and reviewing of financial reports 211,624 202,784
Tax compliance and consulting services 75,126 82,587
286,750 285,371
(b) Other Auditors
Auditing and reviewing of financial reports 53,126 37,494
Tax compliance services 25,136 26,199
78,262 63,693
365,012 349,064
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Consolidated
2012 2011
$’000 $’000
5 Inventories
Finished goods:
At lower of cost and net realisable value 1,244 1,181
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Consolidated
2012 2011
$’000 $’000
6 Trade and Other Receivables
Current:
Trade receivables (i) 8,270 6,520
Allowance for doubtful debts (430) (455)
7,840 6,065
Other receivables 955 665
8,795 6,730
Non current:
Trade receivables 1,301 427
Other receivables 90 100
Other receivables: non-controlling interest holder - 250
1,391 777
(i) The ageing of past due receivables at year end is detailed as follows:
Past due 0-30 days 1,652 1,512
Past due 31-60 days 962 388
Past due 61+ days 798 979
Total 3,412 2,879
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The movement in the allowance for doubtful accounts in respect of trade receivables is detailed below:


Balance at beginning of the year	455 542
Amounts written off during the year	(48) (25)
Increase/(reduction) in allowance recognised in the proft and loss	23 (62)
Balance at end of year	430 455

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Notes to the Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
7 Other Assets
Prepayments 1,104 780
Other 1,591 983
2,695 1,763
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8 Other Financial Assets

8 Other Financial Assets
Investments: quoted shares at fair value	- 6,201
Security deposits	56 56
	56 6,257

During the year Reckon Limited disposed of its interest in Melbourne IT Ltd for $6,448 thousand.

9 Investment in Joint Venture Entity

Investment in Connect2Field Holdings Pty Ltd

660 -

On 11 April 2012 the Group acquired a 30% interest in Connect2Field Holdings Pty Ltd, a company incorporated in Australia and engaged in the development and distribution of a cloud based job management and scheduling application, for consideration of $660 thousand. All key decisions relating to the company require unanimous agreement of the controlling shareholders, including Reckon Limited.

The company has total assets of $1,618 thousand, total liabilities of $53 thousand, and net assets of $1,565 thousand. Reckon Limited’s share of net assets is $470 thousand.

Total revenue for the year since Reckon Limited acquired its interest was $181 thousand, and total losses were $217 thousand. Reckon Limited’s share of the losses was $65 thousand.

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|||
|---|---|
|Consolidated|
|2012|2011|
|$’000|$’000|

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10 Property, Plant And Equipment

Leasehold Improvements

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At cost 3,388 3,490
Less: Accumulated amortisation 2,692 2,267
Total leasehold improvements 696 1,223
Plant and equipment
At cost 6,816 5,963
Less: Accumulated depreciation 4,097 3,785
Total plant and equipment 2,719 2,178
3,415 3,401
Reconciliations
Reconciliations of the carrying amounts of each class of property, plant and equipment at the
beginning and end of the financial year are set out below.
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|||||
|---|---|---|---|
|Reconciliations|
|Reconciliations of the carrying amounts of each class of property, plant and equipment at the|
|beginning and end of the financial year are set out below.|
|Leasehold|Plant and|
|Improvements|Equipment|Total|
|$’000|$’000|$’000|
|Consolidated|
|Carrying amount at 1 January 2012|1,223|2,178|3,401|
|Additions|-|1,371|1,371|
|Acquisitions through business combinations|-|208|208|
|Depreciation/amortisation expense|(527)|(1,038)|(1,565)|
|Balance at 31 December 2012|696|2,719|3,415|
|Consolidated|
|Carrying amount at 1 January 2011|1,230|2,530|3,760|
|Additions|1,026|730|1,756|
|Depreciation/amortisation expense|(1,033)|(1,082)|(2,115)|
|Balance at 31 December 2011|1,223|2,178|3,401|

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Notes to the Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
11 Deferred Tax Asset
The balance comprises temporary differences attributable to:
Doubtful debts 7 17
Employee benefits 55 27
Other provisions 79 42
141 86
Details of unrecognised deferred tax assets can be found in Note 3(c)
Reconciliation:
Opening balance at 1 January 86 56
Credited/(charged) to profit or loss 55 30
Balance at 31 December 141 86
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Consolidated
2012 2011
$’000 $’000
12 Intangibles
Intellectual property – at cost (i) 14,984 12,596
Accumulated amortisation (10,005) (8,987)
4,979 3,609
Development costs – at cost 49,119 38,131
Accumulated amortisation (31,174) (23,549)
17,945 14,582
Goodwill – at cost 45,108 27,775
68,032 45,966
(i) The intellectual property carrying amount comprises of customer contracts of $4,417
thousand (2011: $3,609 thousand) and brand names of $562 thousand (2011: $nil).
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Impairment test for goodwill

Goodwill is allocated to the Group’s cash generating units (CGUs) identified according to the business entities acquired, as follows:

Professional Division Australia	10,361 10,361
Professional Division New Zealand	1,742 1,742
nQueue Billback	1,965 2,011
Elite	2,536 2,536
Reckon Docs (formerly Corporate Services)	11,125 11,125
Virtual Cabinet	17,379 -
	45,108 27,775
The recoverable amount of a CGU is determined based on value-in-use calculations. Management has based the value in use calculations on the most recently completed Board approved budget for the forthcoming one year (2013) period. Subsequent cash fows are projected using constant growth rates of 3% per annum for all CGU’s apart from Virtual Cabinet. Constant growth rates of 8% have been used for Virtual Cabinet to refect the early stage of the evolution of this CGU, which is expected to experience high growth over the next few years. An average post-tax discount rate of 12.2% (2011: 12.2%) (pre-tax rate: 16%) refecting assessed risks associated with CGU’s have been applied to determine the present value of future cash fow projections. No impairment write-offs have been recognised during the year (2011: nil). With the exception of Virtual Cabinet, should the projected growth rates reduce to 0%, no material impairment would arise. In the case of Virtual Cabinet, the projected growth rates would need to reduce to below 5% for an impairment to arise.

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Notes to the Financial Statements continued

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Intellectual Development
Goodwill Property Costs Total
$’000 $’000 $’000 $’000
12 Intangibles continued
Consolidated movements in intangibles
At 1 January 2012 27,775 3,609 14,582 45,966
Additions - - 9,658 9,658
Acquisitions through business combinations (note 29) 17,204 2,388 987 20,579
Effect of foreign currency exchange differences 129 - - 129
-
Amortisation charge (1,018) (7,282) (8,300)
At 31 December 2012 45,108 4,979 17,945 68,032
At 1 January 2011 28,639 4,563 13,236 46,438
Additions - 35 7,398 7,433
- -
Effect of foreign currency exchange differences (864) (864)
-
Amortisation charge (989) (6,052) (7,041)
At 31 December 2011 27,775 3,609 14,582 45,966
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	Consolidated	Consolidated
	2012 $’000 2011 $’000

13 Trade and Other Payables Current:
Trade payables and sundry accruals (i)	4,922 4,184

(i) The credit period for the majority of goods purchased is 30 days. No interest is charged in place to ensure payables are paid within the credit periods.	. The Group has policies

	Consolidated	Consolidated
	2012 $’000 2011 $’000

14 Borrowings Current:
Bank borrowings (i)	10,994 -
Other borrowings	- -
	10,994 -

Non-current:
Hire purchase liabilities i) The consolidated entity has existing bank facilities totaling $23.75 million. The facility comprises a variable rate bank overdraft facility, and a multi option facility (which includes a bill facility and bank guarantee/transactional facility). The facility covers an 18 month term expiring on 31 December 2013. The facility is secured over the Australian net assets of the Group ($44.4 million at 31 December 2012).	136	-

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Bank
Bank Bill Guarantee
overdraft Facility facility
$’000 $’000 $’000
The available, used and unused components of the facility at year
end is as follows:
Available 1,000 20,000 2,750
Used 494 10,500 1,846
Unused 506 9,500 904
The remaining contractual maturity for the facility (including both
interest and principal) is as follows:
0-12 months 494 10,500 1,846
Weighted average interest rate 7.5% 5.1% -
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Notes to the Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
15 Other Financial Liabilities
-
Linden House option liability (i) 10,608
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Linden House option liability (i)	10,608	-
(i) This balance represents the present value of expected future payments arising in conne acquisition of the non-controlling interest in Linden House Software Limited (refer Note 29( future proft entitlements over the next 3 years and the redemption price of put option inst issued in respect of their remaining equity interest in the company. A discount rate of 12.4 applied to future cash fow estimates to derive the outstanding liability. Recognising the pr of the redemption price effectively treats the option as if it has been exercised, which is an transaction. Any re-measurement of this liability is therefore treated as an equity transactio through an “ acquisition of non-controlling interest reserve”. Within the context of AASB 7, classifed as a level 2 fair value measurement, being derived from inputs other than quoted that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). The amount of $13.2 million is payable between one and three years after balance date. Current: 16 Provisions	ction with the c)), including ruments % has been esent value equity n processed this is share prices gross
Sales returns, volume rebates	61 182
Employee benefts	2,425 3,373
Surplus premises	516 590
Commissions and sundry provisions	339 643
	3,341 4,788
Non-current:
Employee benefts	625 594
Surplus premises	569 1,053
	1,194 1,647

16 Provisions continued

Movement in provisions

Movements in each class of provision during the financial year, excluding employee benefits, are set out below:

	Surplus premises Sales returns, volume rebates Commissions and sundry Total
	$’000 $’000 $’000 $’000
2012 Consolidated

Carrying amount at the start of the year	1,643 182 643 2,468
Amounts paid	(1,050) - - (1,050)
Additional provisions recognised/(utilised)	492 (121) (304) 67
Carrying amount at the end of the year	1,085 61 339 1,485
The provision for surplus premises represents the premises that the Group is presently obligated to to be earned on the lease, including estimated fut as a result of changes in the utilisation of the lease lease expires in February 2015.	present value of the future lease payments on the Pyrmont make under the operating lease contract, less revenue expected ure sub-lease revenue, where applicable. The estimate may vary d premises and sub-lease arrangements where applicable. The

17 Working Capital Deficiency

The consolidated statement of financial position indicates an excess of current liabilities over current assets of $14,390 thousand (December 2011:$3,255 thousand). This arises due to the cash management structure adopted by management, whereby surplus funds are used to repay debt and make investments. Furthermore, borrowings obtained during the current year to finance business acquisitions are shown as a current liability at year end due to the expiry of the existing bank facility agreement on 31 December 2013. The Group expects to refinance the existing facility during the course of the 2013 financial year. Unused bank overdraft and bill facilities at balance date total $10 million. Also, included in current liabilities is deferred revenue of $8,674 thousand (December 2011:$6,295 thousand), settlement of which will involve substantially lower cash flows.

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Notes to the Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
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18 Deferred Tax Liabilities

The temporary differences are attributable to:

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Doubtful debts (102) (112)
Employee benefits (1,109) (1,235)
Sales returns and volume rebates (18) (55)
Deferred revenue (598) (574)
Difference between book and tax value of non-current assets 5,802 4,467
Other provisions (1,026) (1,402)
2,949 1,089
Details of unrecognised deferred tax assets can be found in Note 3(c)
Reconciliation:
Opening balance at 1 January 1,089 1,607
Acquisition of business (Note 29) 875 -
Charged (credited) to profit or loss 985 (518)
Balance at 31 December 2,949 1,089
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Parent
2012 2011
$’000 $’000
19 Parent Entity Disclosures
Financial position
Assets
Current assets 2,756 6,172
Non-current assets 76,551 62,130
79,307 68,302
Liabilities
Current liabilities 18,384 9,566
Non-current liabilities 14,138 8,842
32,522 18,408
Equity
Share capital 16,878 15,752
-
Share buyback reserve (8,978)
Available-for-sale revaluation reserve - (1,067)
Share based payments reserve 503 556
-
Acquisition of non-controlling interest reserve (485)
Retained earnings 38,867 34,653
46,785 49,894
Financial performance
Profit for the year 15,752 15,855
Other comprehensive income 247 (1,067)
Total comprehensive income 15,999 14,788
- -
Capital commitments for the acquisition of property, plant and equipment
Other
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Reckon Limited assets have been used as security for the bank facilities set out in Note 14. The parent entity has no contingent liabilities.

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Notes to the Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
20 Employee Benefits
The aggregate employee benefit liability recognised and included in the financial
statements is as follows:
Accrued annual leave:
Current (Note 16) 1,272 1,286
Long term incentive:
Current (Note 16) 196 1,073
Non-current (Note 16) 91 211
Provision for long service leave:
Current (Note 16) 957 1,014
Non-current (Note 16) 534 383
3,050 3,967
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Long-term incentive plan

The long-term incentive plan was approved at the Special General Meeting on 20 December 2005, and comprises three possible methods of participation: an option plan, a performance share plan and a share appreciation plan. The Board has discretion to make offers to applicable employees to participate in any of these plans. Options granted and/or performance shares awarded (all in respect of the Company’s ordinary shares) and/or share appreciation rights do not vest before three years after their grant date and are conditional on the participant remaining employed at vesting date, subject to board discretion. Vesting is also conditional upon the Company achieving defined performance criteria. The performance criteria are based upon a total shareholder return (TSR) target. A TSR is the return to shareholders over a prescribed period, being the growth in the Company’s share price plus dividends or returns of capital for that period. The Company’s initial TSR target will be the Company achieving a median or higher ranking against the TSR position of individual companies within a ‘comparator Group’ of companies (i.e. a group of comparable ASX listed companies pre-selected by the Board) over the same period. The initial comparator group was determined by independent advisers and was set out in the Chairman’s speech at the Special General Meeting on 20 December 2005. The Board reviews the suitability of the comparator group on an ongoing basis. Only 50% of options or performance shares become exercisable or vest if the initial performance criterion is satisfied. The extent to which the balance of options or performance shares become exercisable or vest will depend on the extent to which the initial performance criterion is exceeded (i.e. the extent to which the Company exceeds a median ranking against the TSR position of the comparator group of companies).

From 2011 performance shares were also awarded with longer term vesting periods. The principal vesting condition is that participants must remain employed for the term, in this case, to achieve 100% vesting employees must remain in employment for 10 years from the date of initial offer.

continued 20 Employee Benefits

The share appreciation rights plan represents an alternative remuneration element (to offering options or performance shares) under which the Board can invite relevant employees to apply for a right to receive a cash payment from the Company equal to the amount (if any) by which the market price of the Company’s shares at the date of exercise of the right exceeds the market price of the Company’s shares at the date of grant of the right. The right may only be exercised if performance criteria are met. The performance criteria are fixed by the Board in the exercise of its discretion. At present these are the same as the TSR target set for the right to exercise options or for performance shares to vest.

No options were issued during the year (2011: Nil).

396,825 (2011: 282,258) appreciation rights and 277,940 (2011:269,204) performance shares, were issued during the year. The fair value of these rights was 44 cents (2011: 62 cents) and the shares were $1.785 (2011: $1.912), using a model that adopts the Monte Carlo simulation approach. The assumptions used in this model are: grant date share price of $2.26; expected volatility of 27.7%; dividend yield of 3.5%; and a risk free rate of 3.3%. The expense recognised in 2012 for appreciation rights/performance shares was $304,092 (2011: $701,914).

Set out below are summaries of performance shares and appreciation rights granted under the long-term incentive plan:

Performance Shares

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Grant Vesting Shares Shares lapsed Shares vested Shares available at
Date Date Granted during the year during the year the end of the year
2012 2011 2012 2011 2012 2011
Jan’09 Dec’11 375,475 - - - 365,951 - -
Jan’10 Dec’12 214,190 7,568 15,315 155,271 30,631 - 162,839
Jan’11 Dec’13 156,704 23,981 - 7,053 - 125,670 156,704
Jan’12 Dec’14 150,440 54,033 - - - 96,407 -
Jan’11 Dec’17 112,500 16,250 - - - 96,250 112,500
Jan’12 Dec’18 127,500 16,250 - - - 111,250 -
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382,500 additional shares have been acquired for future grants.

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||||||||||
|---|---|---|---|---|---|---|---|---|
|Appreciation Rights|
|Grant|Vesting|Rights|Rights lapsed|Rights vested|Rights available at|
|Date|Date|Granted|during the year|during the year|the end of the year|
|2012|2011|2012|2011|2012|2011|
|Jan’09|Dec’11|888,324|-|-|-|888,324|-|-|
|Jan’10|Dec’12|357,873|-|-|357,873|-|-|357,873|
|Jan’11|Dec’13|282,258|-|-|-|-|282,258|282,258|
|Jan’12|Dec’14|396,825|-|-|-|-|396,825|-|

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Notes to the Financial Statements continued

continued 20 Employee Benefits

Reckon Limited Employee Option Plans

The Company has previously had two ownership-based remuneration schemes:

Executive share option plan

The executive share option plan has been terminated.

Executive share option plan No. 2

The Reckon Limited Executive Share Option Plan No. 2 was established on 19 July 2000. Under the provisions of the plan, the Directors may grant options over unissued shares in the Company to executives and Directors of the Company (or their associates) or subsidiaries of the Company selected by the Directors from time to time, subject to the ASX Listing Rules and the Corporations Act 2001.

Options are granted for a five-year period and 50% of each new tranche becomes exercisable after each of the first two anniversaries of the grant date. The entitlements are vested as soon as they are exercisable (i.e. they are not conditional on future employment). Each option entitles the holder to one ordinary share.

Amounts receivable on exercise of any options are recognised as share capital. No options were exercised during the year. In 2011 options were exercised with an average exercise price of $0.72.

Set out below are summaries of options granted under the Executive Share Option Plan No. 2.

Performance Shares	Performance Shares	Performance Shares	Performance Shares
Grant date Expiry date Exercise Price Options Initially Granted				Options lapsed during the year Options exercised and shares issued during the year				Options vested and available at the end of the year
				2012 2011 2012 2011				2012 2011
Dec 05 Dec 10 $0.722 144,445				- - - 12,666				- -
Number	of shares t	hat can be	issued for un	-	-	-	12,666	-	-
				exercised op	tions			-	-

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2012 2011
No. $’000 No. $’000
21 Issued Capital
Fully Paid Ordinary Share Capital
Balance at beginning of financial year 132,839,672 17,476 133,384,060 18,833
-
Share buyback (3,351,657) (557,054) (1,366)
- - -
Prior year share buyback transferred to reserves 1,366
Issue of shares - - 12,666 9
Balance at end of financial year 129,488,015 18,842 132,839,672 17,476
Less Treasury shares
Balance at beginning of financial year 744,858 1,724 574,736 785
Shares purchased in current period 235,127 541 559,926 1,389
-
Shares lapsed (5,584) (15,315) (28)
Lapsed shares utilised - - 22,093 38
Shares vested (162,324) (301) (396,582) (460)
Balance at end of financial year 812,077 1,964 744,858 1,724
Balance at end of financial year net of treasury shares 128,675,938 16,878 132,094,814 15,752
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
Changes to the then Corporations Law abolished the authorised capital and par value concepts in relation to share capital
from 1 July 1998. Therefore the company does not have a limited amount of authorised capital and issued shares do not have
a par value.
During the year 3,351,657 (2011: 557,054) shares were bought back at an average price of $2.27 (2011: $2.45). The shares
bought back in the current year were cancelled immediately.
No options were exercised during the year. In 2011 12,666 options were exercised with an average exercise price of $0.72.
Details of the options that were exercised and further details in respect of the share option plans are contained in Note 20 to the
financial statements. Total consideration for options exercised during 2011 was $9,145.
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Notes to the Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
22 Reserves
Foreign currency translation reserve
Balance at beginning of financial year (1,569) (694)
Translation of foreign operations 186 (875)
Balance at end of financial year (1,383) (1,569)
Asset revaluation reserve
-
Balance at beginning of financial year (1,067)
Transfer to retained earnings 820 -
Fair value adjustment of financial assets 247 (1,067)
-
Balance at end of financial year (1,067)
Share buyback reserve
- -
Balance at beginning of financial year
-
Share buyback (7,612)
-
Prior year share buyback (1,366)
-
Balance at end of financial year (8,978)
Acquisition of non-controlling interest reserve
- -
Balance at beginning of financial year
Transfer from non-controlling interest 79 -
-
Increase in interest in nQueue Billback subsidiaries (note 29(d)) (4,496)
-
Fair value adjustment of Linden House option liability (note 15) (564)
-
Balance at end of financial year (4,981)
Share-based payments reserve
Balance at beginning of financial year 556 631
Share based payment expense 248 375
Treasury shares vested/lapsed (301) (450)
Balance at end of financial year 503 556
(14,839) (2,080)
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22 Reserves continued

Nature and purpose of reserves

(a) Foreign currency translation reserve

Exchange differences arising on translation of the financial reports of foreign subsidiaries are taken to the foreign currency translation reserve, as described in Note 1(g).

(b) Asset revaluation reserve

Fair value adjustments of financial assets are taken to the asset revaluation reserve.

(c) Share buyback reserve

The value of shares bought back are allocated to this reserve.

(d) Share-based payments reserve

The share-based payments reserve is for the fair value of options granted and recognised to date but not yet exercised, and treasury shares purchased and recognised to date which have not yet vested.

(e) Acquisition of non-controlling interest reserve

The acquisition of non-controlling interest reserve represents an equity account to record transactions between equity holders.

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Consolidated
2012 2011
$’000 $’000
23 Retained Earnings
Balance at beginning of financial year 36,621 31,156
Net profit 17,342 16,062
Transfer from the asset revaluation reserve (820) -
Dividends (Note 31) (10,764) (10,597)
Balance at end of financial year 42,379 36,621
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Notes to the Financial Statements continued

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Consolidated
2012 2011
Cents Cents
24 Earnings Per Share
Basic earnings per share 13.4 12.1
Diluted earnings per share 13.3 12.0
Weighted average number of ordinary shares used in the calculation of basic
earnings per share 129,533,443 132,586,637
Weighted average number of ordinary shares and potential ordinary shares used in
130,345,520 133,331,495
the calculation of diluted earnings per share
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25 Contingent Liabilities

There are no material contingent liabilities as at 31 December 2012 (2011: Nil).

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Consolidated
2012 2011
$’000 $’000
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26 Commitments For Expenditure

(a) Capital Expenditure Commitments

The consolidated entity has capital expenditure commitments of $nil as at 31 December 2012 (2011: $nil).

(b) Lease Commitments

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Operating Leases
Within 1 year 2,697 2,559
Later than 1 year and not longer than 5 years 7,274 8,332
Later than 5 years 342 1,767
10,313 12,658
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Operating leases relate to office and warehouse premises with lease terms of between 1 to 7 years. All operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have an option to purchase the leased asset at the expiry of the lease period.

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Ownership Interest
Country of
Name of Entity Incorporation 2012 % 2011 %
27 Subsidiaries
Parent Entity
Reckon Limited Australia
Subsidiaries
Reckon.com.au Pty Limited Australia 100 100
Reckon Australia Pty Limited Australia 100 100
Reckon Investment Centre Limited Australia 100 100
Reckon Online Holdings Pty Limited Australia 100 100
Reckon Pacrim Pty Limited Australia - 100
Reckon Training Pty Limited Australia - 90
Reckon Limited Performance Share Plan Trust Australia 100 100
Reckon New Zealand Pty Limited New Zealand 100 100
Advanced Professional Solutions Pty Limited Australia 100 100
Advanced Professional Solutions Limited New Zealand 100 100
Reckon Accountable Technology Limited United Kingdom 100 100
Reckon Docs Pty Limited Australia 100 100
Independent Corporate Services Pty Limited Australia - 100
Quickdocs.com.au Pty Limited Australia 100 100
nQueue Billback Australia Pty Limited Australia 100 100
nQueue Billback Limited United Kingdom 100 75
Billback LLC United States of America 100 100
nQueue Billback LLC United States of America 100 74
Linden House Software Limited (refer Note 29) United Kingdom 50 -
Reckon Accounts Pte Limited Singapore 100 -
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Subsidiaries deregistered in 2012

All shares held are ordinary shares.

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Notes to the Financial Statements continued

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Consolidated
2012 2011
$ $
28 Related Party Disclosures
(a) Key Management Personnel Remuneration
Short term benefits 3,653,731 3,522,881
Post-employment benefits 220,492 223,240
Share based payments 275,672 603,170
4,149,895 4,349,291
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The names of and positions held by the key management are set out in Note 28(d). Further details of the remuneration of key management are disclosed in the Directors’ Report.

(b) Other Transactions with Key Management Personnel

There were no transactions with Directors and other key management personnel apart from those disclosed in this note and in Note 29(e).

(c) Other Related Party Transactions

Intuit Ventures Inc

Intuit Ventures Inc, a significant shareholder (11.5%) in Reckon Limited, provides the rights for Reckon to market and distribute Intuit software throughout Australia and New Zealand. In return for this, Intuit receives a royalty payment based on sales made throughout the territory. These royalties amounted to $5,322,372 (2011: $4,733,481) which is expensed in the month that the associated product was sold. The balance due at 31 December 2012 is $186,993 (2011: $158,786).

On 22 March 2012, Reckon announced as a consequence of the gradual divergence of the respective online ambitions of Reckon Limited and Intuit Inc, that they have entered notice period ending on 10 February 2014, when Reckon’s licensing agreement with Intuit will be formally terminated.

From a Reckon Limited persepective, it is business as usual until 14 February 2014, whereafter Reckon will enjoy royalty free rights to continue selling, and may independently develop the then current Intuit desktop technology and QuickBooks Hosted technology for a 100 year period, resulting in an annualised royalty saving of about $6 million. After 10 February 2014 Reckon will not have access to the Intuit brands.

In the online market, Reckon continues to develop products that will be rolled out over the coming months. The strategy remains to provide fully localised products specifically for Reckon’s markets hosted locally, to achieve ambitions of providing integrated solutions to achieve greater efficiency for accountants, bookkeepers, and their business clients.

28 Related Party Disclosures continued

d) Directors’ and Key Management Equity Holdings

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Options and Shareholding 2012 [1]
Shareholding Shareholding Performance Performance Performance Performance
at start of at end of shares at shares vested shares issued shares held at
Office 2012 2012 [2] start of 2012 in 2012 in 2012 end of 2012
Deputy Chairman,
Greg Wilkinson Non-executive 7,450,000 7,450,000 0 0 0 0
Director
CEO, Executive
Clive Rabie Director 10,508,000 10,508,000 0 0 0 0
CEO, Professional -
Brian Coventry [3] Division 50,000 12,573 30,648 12,573 23,394
Chairman,Non-
John Thame executive Director 19,000 19,000 0 0 0 0
General Counsel &
Myron Zlotnick Company Secretary 95,974 123,001 105,625 27,027 46,787 125,385
Non-executive
Ian Ferrier Director 0 0 0 0 0 0
Chief Financial
Chris Hagglund Officer 255,073 296,289 140,398 41,216 58,226 157,408
CEO Business
Gavin Dixon [5] Division 290,284 264,724 81,917 39,514 37,039 0
CEO Professional
Sam Allert [4] Division 11,429 7,568 30,648 7,568 23,394 46,474
President & CEO
Richard Hellers nQueue Billback 0 0 0 0 0 0
division
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No options were issued in 2012.
Share holdings at the date of the Director’s Report remain unchanged.
Mr Coventry’s employment terminated on 31 December 2012 (41,469 performance shares lapsed).
Mr Allert commenced as CEO Professional Division effective from 1 October 2012 (previously MD APS Australia).
Mr Dixon’s employment terminated on 31 March 2013 (79,442 performance shares lapsed).

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Notes to the Financial Statements continued

28 Related Party Disclosures continued

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Options and Shareholding 2011 [1]
Shareholding Shareholding Performance Performance Performance Performance
at start of at end of shares at shares vested shares issued shares held at
Office 2011 2011 [2] start of 2011 in 2011 in 2011 end of 2011
Deputy Chairman,
Greg Wilkinson Non-executive 7,450,000 7,450,000 0 0 0 0
Director
CEO, Executive
Clive Rabie Director 10,508,000 10,508,000 0 0 0 0
Brian CEO, Professional
Armstrong [2] Division 776,107 550,025 216,798 111,583 0 0
CEO, Professional
Brian Coventry Division 109,589 50,000 20,901 13,333 23,080 30,648
Chairman,Non-
John Thame executive Director 19,000 19,000 0 0 0 0
General Counsel &
Myron Zlotnick Company Secretary 50,215 95,974 107,084 47,619 46,160 105,625
Non-executive
Ian Ferrier Director 0 0 0 0 0 0
Chief Financial
Chris Hagglund Officer 162,454 255,073 155,749 72,619 57,268 140,398
CEO Business
Gavin Dixon Division 124,362 290,284 126,898 80,952 35,971 81,917
President & CEO
Richard Hellers nQueue Billback 0 0 0 0 0 0
division
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No options were issued in 2011.
Mr. Armstrong’s employment ended on 31 December 2011 (15,315 performance shares lapsed).

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Consolidated
2012 2011
$’000 $’000
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29 Notes to the Statement of Cash Flows

(a) Reconciliation of cash

For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows:

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Cash (i) 1,926 4,703
Bank overdraft (494) -
Balance at end of financial year 1,432 4,703
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(i) Cash balance is predominantly in the form of short-term money market deposits, which can be accessed at call.

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(b) Reconciliation of Profit After Income Tax To Net Cash Flows From Operating Activities
Profit after income tax 17,767 16,693
Depreciation and amortisation of non-current assets 9,823 9,108
Non-cash employee benefits expense – share based payment 248 375
Increase/(decrease) in current tax liability/asset (1,246) 1,445
Increase/(decrease) in deferred tax balances 930 (548)
Unrealised foreign currency translation amount 44 18
(Increase)/decrease in assets net of acquisitions:
Current receivables (400) 26
Current inventories (63) (350)
Other current assets (932) (443)
Non-current receivables (614) (541)
Increase/(decrease) in liabilities net of acquisitions:
Current trade payables 153 (368)
Other current liabilities (1,229) 1,815
Other non-current liabilities (453) (411)
Net cash inflow from operating activities 24,028 26,819
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Notes to Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
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29 Notes to the Statement of Cash Flows continued

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(c) Business acquired – Linden House
Cash consideration 9,168 -
-
Less net cash acquired (657)
-
8,511
-
Fair value of option liability 10,262
-
18,773
Fair value of assets acquired:
Receivables 1,665 -
-
Intellectual property – customer contracts 1,826
Intellectual property – development of solution 987 -
Intellectual property – brand 562 -
Fixed assets 208 -
-
Payables (492)
-
Hire purchase liabilities (151)
Deferred tax liabilities (875) -
Deferred revenue (2,161) -
-
1,569
Goodwill 17,204 -
-
18,773
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29 Notes to the Statement of Cash Flows continued

On 3 July 2012 Reckon Limited acquired an initial 50% interest in Linden House Software Limited together with options to take its total holding to 100%. The purchase consideration is made up of an initial payment of 6 million Pounds, with expected additional payments of 8 million Pounds. The additional payments are based on the performance of the business over the next 3 years. The total consideration of 14 million Pounds would equate to an approximate 5x multiple of forecast 2015 EBITDA. The acquisition was funded from existing cash reserves and debt facilities. Linden House develops and distributes a document management and portal solution under the brand Virtual Cabinet. Linden House Software Limited is incorporated in the United Kingdom. Refer Note 15 for disclosure relating to the recognition of the associated option liability. This is a non-cash transaction.

Goodwill in Linden House arose because the consideration paid/to be paid for the company effectively included amounts in relation to the benefit of expected revenue growth, future market development and the assembled workforce. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable tangible assets.

Linden House has been consolidated on the basis of the existence of a substantive call option, which is effective at acquisition date, and which enables Reckon Limited to acquire the remaining interest in the company.

The initial accounting for the acquisition of Linden House has only been provisionally determined at the end of the reporting period.

Revenue and profit included in the Reckon Limited results from Linden House for the year is as set out in Note 33. Had this business been acquired on 1 January 2012, the revenue and profit would have been approximately double.

Business acquisition costs amounting to $173 thousand have been excluded from the consideration paid and have been recognized as an expense.

(d) nQueue Billback division minority interest acquired

Effective from 31 July 2012 Reckon Limited acquired the 26% remaining interest in the nQueue Billback division in the USA and the remaining 25% interest in nQueue Billback UK that it did not previously hold for cash consideration of $4,496 thousand.

(e) APS UK Division sold

Effective from 31 December 2012 the APS UK business has been sold to the previous managing director, Brian Coventry. Reckon will receive an ongoing revenue stream from royalties on sales under a licensing agreement. Revenue generated by the APS UK business in 2012 was $1,951 thousand, and a profit after tax of $502k. There is not expected to be any material change to the profit generated under the new arrangements.

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|||
|---|---|
|30 Non-Controlling Interest|Consolidated|
|2012|2011|
|$’000|$’000|

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30 Non Controlling Interest

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Interest in:
Accumulated profits - 203
- 203
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Notes to Financial Statements continued

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Consolidated
2012 2011
$’000 $’000
31 Dividends – ordinary shares
Final dividend for the year ended 31 December 2011 of 4.5 cents (2010: 4.5 cents) per
5,945 5,968
share franked to 90% paid on 2 March 2012
Interim dividend for the year ended 31 December 2012 of 3.75 cents per share franked
4,819 4,629
to 90% (2011: 3.5 cents) paid on 7 September 2012
10,764 10,597
Franking credits available for subsequent financial years based on a tax rate of 30%
1,697 1,957
(2011: 30%)
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Refer to Note 34 for details of dividends declared post year end.

32 Financial Instruments

(a) Significant Accounting Policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements.

(b) Financial Risk Management Objectives

The Board of Directors has overall responsibility for the establishment and oversight of the company and Group’s financial management framework.

The Board of Directors oversees how Management monitors compliance with risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks. The main risk arising from the company and Group’s financial instruments are currency risk, credit risk, equity price risk, liquidity risk and cash flow interest rate risk.

(c) Interest Rate Risk

The Group is exposed to interest rate risk on the cash held in bank deposits and on bank borrowings. Cash deposits of $1,926 thousand were held by the consolidated entity at the reporting date, attracting an average interest rate of 0.8% (2011: 3.3%). Interest bearing borrowings by the consolidated entity at the reporting date were $10,994 thousand (2011:$nil). These variable rate borrowings during the year attracted an average interest rate of 7.5% (2011: 8.10%) on overdraft facilities and 5.1% on bank bill facilities (2011: 6.43%). If interest rates had been 50 basis points higher or lower (being the relevant volatility considered relevant by management) and all other variables were held constant, the group’s net profit would increase/decrease by $45 thousand (2011: $23 thousand).

The Board of Directors monitors these exposures and does not presently hedge against these risks.

The maturity profile for the consolidated entity’s cash ($1,926 thousand) and interest bearing borrowings ($10,994 thousand) that are exposed to interest rate risk is less than 1 year.

32 Financial Instruments continued

(d) Credit Risk

Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults.

The consolidated entity does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics.

The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the consolidated entity’s maximum exposure to credit risk without taking account of the value of any collateral or other security obtained.

The average credit period on sale of goods is 45 days. Interest is generally not charged. The Group recognises an allowance for doubtful debts comprising a specific component for expected irrecoverable amounts, and a general provision calculated as a % of outstanding balances based upon the historical experience.

(e) Foreign Currency Risk

The consolidated entity and Company undertakes certain transactions denominated in foreign currencies that are different to the functional currencies of the entities undertaking the transactions, hence exposures to exchange rate fluctuations arise. The Board of Directors monitors these exposures and does not presently hedge against this risk.

The carrying amount of the consolidated entity’s foreign currency denominated monetary assets and liabilities at the reporting date that are denominated in a currency that is different to the functional currency of respective entities undertaking the transactions is as follows:

Consolidated	Consolidated	Consolidated
Liabilities Assets
2012 $’000 2011 $’000 2012 $’000 2011 $’000

Euro	-	- 60 129

At 31 December 2012, if the Euro weakened against the UK Pound by 10% (being the relevant volatility considered relevant by management), with all other variables held constant the net profit of the consolidated entity would increase by $6 thousand (2011: $18 thousand). At 31 December 2012, if the New Zealand Dollar, US Dollar and UK Sterling weakened against the Australian Dollar by 10% (being the relevant volatility considered relevant by Management), with all other variables held constant the net profit of the consolidated entity would increase by $271 thousand (2011: $95 thousand). This latter sensitivity relates to inter-group loan balances denominated in Australian Dollars, which are eliminated on consolidation.

In management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk as the year-end exposure does not necessarily reflect the exposure during the course of the year. The consolidated entity includes certain subsidiaries whose functional currencies are different to the consolidated entity presentation currency. The main operating entities outside of Australia are based in New Zealand, United States of America and the United Kingdom. These entities transact primarily in their functional currency and, aside from inter-group loan balances, do not have significant foreign currency exposures due to outstanding foreign currency denominated items. As stated in the consolidated entity’s accounting policies per Note 1, on consolidation the assets and liabilities of these entities are translated into Australian Dollars at exchange rates prevailing at year end.

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Notes to Financial Statements continued

32 Financial Instruments continued

The income and expenses of these entities is translated at the average exchange rates for the year. Exchange differences arising are classified as equity and are transferred to a foreign exchange translation reserve. The consolidated entity’s future reported profits could therefore be impacted by changes in rates of exchange between the Australian Dollar and the New Zealand Dollar, and the Australian Dollar and the US Dollar and the Australian Dollar and the UK Sterling.

(f) Liquidity

The Group manages liquidity risk by maintaining adequate cash reserves and banking facilities by continuously monitoring forecast and actual cash flows.

(g) Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of cash, other financial assets, debt and equity attributable to equity holders of the parent. The Board reviews the capital structure on a regular basis. Based upon this review, the Group balances its overall capital structure through borrowings, the payment of dividends, issues of shares, share buybacks and returns of capital. This strategy remains unchanged since the prior year.

(h) Fair Value

The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets, is determined with reference to quoted market prices. The fair value of other financial assets and liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable market transactions. The carrying amount of financial assets and financial liabilities recorded in the financial report approximates their respective fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements.

33 Segment Information

Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.

(a) Business segment information

The consolidated entity is organised into four operating divisions:

Business division	Professional division
nQueue Billback division	Virtual Cabinet division

These divisions are the basis upon which the consolidated entity reports its financial information to the chief operating decision maker, being the Board of Directors.

The principal activities of these divisions are as follows:

Business division – development, distribution and support of personal financial and accounting software, as well as related products and services to professional partners. Products sold in this division include Reckon Accounts, (which includes the product range formerly named Quicken and the QuickBooks range which will be renamed Reckon Accounts in April 2013), Reckon Docs and Reckon Elite.
Professional division – development, distribution and support of practice management, tax, client accounting and related software under the APS brand.
nQueue Billback division – distribution and support of cost recovery, cost management and related software.
Virtual Cabinet division – development, distribution and support of document management and documentt portal products.

Consolidated 2012 $’000 2011 $’000	Consolidated 2012 $’000 2011 $’000
33 Segment Informationcontinued Segment revenues and results

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Operating revenue
Business division 58,280 55,849
Professional division 25,095 23,209
nQueue Billback division 10,855 11,186
Virtual Cabinet division 2,376 -
96,606 90,244
Other revenue 159 486
Total revenue 96,765 90,730
Consolidated
2012 2012 2012 2011 2011 2011
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Consolidated
2012 2012 2012 2011 2011 2011
$’000 $’000 $’000 $’000 $’000 $’000
EBITDA D&A NPBT EBITDA D&A NPBT
Business division 21,337 (2,478) 18,859 20,613 (2,205) 18,408
Professional division 12,361 (5,347) 7,014 10,675 (4,888) 5,787
nQueue Billback division 4,596 (1,698) 2,898 5,052 (1,459) 3,593
Virtual Cabinet division 499 (301) 198 - - -
38,793 (9,824) 28,969 36,340 (8,552) 27,788
Central administration costs (4,213) (4,067)
Premises relocation costs (492) (2,352)
-
Acquisition costs (173)
Litigation settlement - 542
Other revenue 159 486
Finance costs (311) (168)
Profit before income tax 23,939 22,229
Income tax expense (6,172) (5,536)
Profit for the year 17,767 16,693
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The revenue reported above represents revenue generated from external customers.

Segment profit represents the profit earned by each segment without allocation of central administration costs, finance costs and income tax expense, all of which are allocated to corporate head office. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessing performance.

EBITDA above means earnings before interest, depreciation and amortisation, D&A means depreciation and amortisation, and NPBT means net profit before tax.

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Notes to Financial Statements continued

as at 31 December 2012

continued 33 Segment Information

The Professional division in the 2011 annual report, included nQueue Billback Australia. Following the acquisition of the remaining minority interest in the rest of the nQueue Billback division in the current year, management responsibility for the Australian business has been transferred to the nQueue Billback division management team. The 2011 results have been restated to reflect this change.

No single country outside of Australia contributed more than 10% of Group revenue for either 2012 or 2011.

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Additions to
Assets Liabilities non-current assets
2012 2011 2012 2011 2012 2011
$'000 $'000 $'000 $'000 $'000 $'000
Segment assets and liabilities
Business division 25,511 32,799 20,724 18,677 3,713 2,679
Professional division 27,554 34,239 4,908 5,148 5,015 5,340
nQueue Billback division 15,291 11,316 7,019 4,033 1,566 1,170
Virtual Cabinet division 23,341 - 14,628 - 21,522 -
- - - - -
Corporate division 7,268
Total of all segments 91,697 78,354 47,279 27,858 31,816 16,457
Eliminations (3,342) (7,490) (3,342) (7,490) - -
Consolidated 88,355 70,864 43,937 20,368 31,816 16,457
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Revenue from
external customers Non-current assets
2012 2011 2012 2011
$'000 $'000 $'000 $'000
(b) Geographical information
Australia 77,223 74,291 38,826 42,703
Other countries (i) 19,383 15,953 34,869 13,784
96,606 90,244 73,695 56,487
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(i) No single country outside of Australia is considered to generate revenues which are material to the Group.

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Consolidated
2012 2011
$'000 $'000
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continued 33 Segment Information

(c) Segment revenues

External sales

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Business and wealth management products and services 52,152 49,859
Accounting industry products and services 33,599 29,199
Legal industry products and services 10,855 11,186
96,606 90,244
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34 Subsequent Events

Subsequent to the end of the financial year:

Share buy back

On 5 February 2013 the Board of Directors recommended to continue the on-market share buyback of not more than 10% of the shares in the Company.

Dividend

The Board has declared a dividend of 4.75 cents per share to shareholders on 5 February 2013. The dividend will be 90% franked. The record date for the dividend is 15 February 2013. The aggregate amount of the proposed dividend expected to be paid on 1 March 2013 out of retained profits at 31 December 2012, but not recognised as a liability at the end of the year is $6,112 thousand. The impact on the franking account balance of unrecognised dividends is $2,357 thousand.

35 Company information

Reckon Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Level 12, 65 Berry Street North Sydney Sydney NSW 2060.

A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities in the Directors’ Report, which is not part of this financial report.

The financial report was authorised for issue by the directors on 25 March 2013.

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Additional information as at 8 March 2013

(Unaudited)

Twenty Largest Holders of Quoted Equity Securities

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Ordinary Shareholder Number Percentage
1. National Nominees Limited 16,400,431 12.67
2. Intuit Ventures Inc 14,828,304 11.45
3. RBC Investor Services Australia Nominees Pty Limited 13,980,368 10.80
4. HSBC Custody Nominees (Australia) Limited 10,471,831 8.09
5. Gregory John Wilkinson 6,147,800 4.75
6. DJZ Investments Pty Limited 4,690,000 3.62
7. Aust Executor Trustees SA Ltd 4,513,690 3.49
8. UBS Nominees Pty Ltd 4,349,615 3.36
9. Mr Clive Rabie & Mrs Kerry Rose Rabie 4,285,611 3.31
10. Citicorp Nominees Pty Ltd 3,849,651 2.97
11. J P Morgan Nominees Australia Limited 3,525,457 2.72
12. Citicorp Nominees Pty Limited 2,452,859 1.89
13. BNP Paribas Noms Pty Ltd 1,976,028 1.53
14. Mr Stephen James Rickwood 1,601,062 1.24
15. Mr Clive Alan Rabie 1,532,389 1.18
16. Rawform Pty Ltd 1,302,200 1.01
17. Mr Philip Ross Hayman 1,053,636 0.81
18. UBS Nominees Pty Ltd 1,001,441 0.77
19. Reckon Australia Pty Ltd 960,241 0.74
20. Equity Trustees Limited 957,911 0.74
99,880,525 77.13
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Number of Holders of Equity Securities

Ordinary Share Capital

129,488,015 fully paid ordinary shares are held by 3,593 individual shareholders as at 8 March 2013. All issued ordinary shares carry one vote per share.

Shareholdings less than marketable parcels

The number of shareholdings held in less than marketable parcels is 78.

Distribution of Holders of Equity Securities

As at 8 March 2013

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Number of Ordinary Shares Number of Shareholders
1 – 1,000 862
1,001 – 5,000 1,690
5,001 – 10,000 523
10,001 – 100,000 470
100,001 and over 48
Total 3,593
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Substantial Shareholders

As at 8 March 2013

(a) From Twenty Largest Holders of Quoted Equity Securities

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Ordinary Shares Ordinary Shares
(Number) (Percentage)
National Nominees Limited 16,400,431 12.67
Intuit Ventures Inc 14,828,304 11.45
RBC Investor Services Australia Nominees Pty Limited 13,980,368 10.80
Mr Clive Rabie & Mrs Kerry Rose Rabie 10,508,000 8.11
HSBC Custody Nominees (Australia) Limited 10,471,831 8.09
Gregory John Wilkinson 7,450,000 5.76
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(b) As Disclosed to ASX

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Ordinary Shares Ordinary Shares
(Number) (Percentage)
Perpetual Limited and Subsidiaries 16,496,090 12.74
National Nominees as Custodian for Unisuper Ltd 6,488,557 5.01
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Additional information as at 8 March 2013

(Unaudited)

Principal Registered Office

Level 12, 65 Berry Street North Sydney NSW 2060 Tel: (02) 9577 5000.

Share Registry

Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 Tel: (02) 8234 5000.

Auditors

Deloitte Touche Tohmatsu 225 George Street Sydney NSW 2000.

Principal Administration Office

Level 12, 65 Berry Street North Sydney NSW 2060 Tel: (02) 9577 5000.

Stock Exchange Listings

Reckon Limited’s ordinary shares are listed on the Australian Securities Exchange Limited under the symbol ‘RKN’.

Company Secretary

Mr Myron Zlotnick.

Annual General Meeting

The Annual General Meeting for Reckon Limited will be held on Thursday 23 May 2013 at 10am at Level 12, 65 Berry Street, North Sydney, NSW.

If you are unable to attend, you are invited to complete the Proxy Form included with your Notice of Meeting. The completed Proxy Form must be received no later than 48 hours before the Annual General Meeting.

Important Information – Corporate Notices

Securityholders will be aware that recent legislative changes have impacted the options to receive statutory corporate notices and reports. In the interest of cost saving and the environment (every little bit helps), we encourage you to opt in to receive all notices and reports electronically.

TO RECEIVE ALL NOTICES AND REPORTS IN ELECTRONIC FORMAT, please go to www.computershare.com.au and follow the prompts to register.

To register to be notified by email when the Annual Report and other Announcements are available online:

Visit the share registry at www.computershare.com
Click on ‘Investor Centre’
Select ‘Update my details’ tab and click on ‘Communications Options’
Type ‘RKN’ in the Company Code field
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Reckon Limited ABN 14 003 348 730 | Level 12, 65 Berry Street North Sydney NSW 2060 Australia T +61 2 9577 5000 | F +61 2 9577 5555 | [email protected] | www.reckon.com.au

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RECKON LIMITED — Annual Report 2012

65708_rns_2013-03-27_7c3cc6f8-777d-4cb9-8ee0-95c50c80ffc5.pdf

2012 | Annual Report

Reckon Limited Annual Report

Contents

Our Results at a Glance

Operating Revenue

EBITDA

NPBT

Message to Shareholders from the Chairman and Group CEO

Overview

Key Performance Metrics

Dividend

Message to Shareholders from the continued Chairman and Group CEO

Divisional Performance

Business Division

Professional Division

nQueue Billback Division

Virtual Cabinet Division

Focus

Directors’ Report

The Directors of Reckon Limited submit these financial statements for the financial year ended 31 December 2012

Board of Directors

John Thame AAIBF FCPA

Non-Executive Chairman

Ian Ferrier FCA

Non-Executive Director

Greg Wilkinson

Deputy Non-Executive Chairman

Clive Rabie

Group Chief Executive Officer

Myron Zlotnick LLM, GCertAppFin

General Counsel and Company Secretary

Marianne Kopeinig LLM, GDipApplCorpGov

Legal Counsel and Assistant Company Secretary

Principal Activities

Business division

continued Directors’ Report

Professional division

nQueue Billback division

Virtual Cabinet division

Review of Operations

continued Directors’ Report

Buyback 2012

Dividends

Significant Changes in State of Affairs

Matters Subsequent to the End of the Financial Year

Other Matters

Future Developments

Directors’ Shareholdings

continued Directors’ Report Remuneration Report

Key Management

Policy for Determining Remuneration of Key Management Personnel

Terms of Employment for Key Management Personnel

Fixed Component

Short-Term Incentive Payments

Long-Term Incentive Payments

continued Directors’ Report continued Remuneration Report

Balance Between Salary, Short-Term and Long-Term Incentives

continued Directors’ Report continued Remuneration Report (Audited)

continued Directors’ Report continued Remuneration Report

continued Directors’ Report

Indemnification of Directors and Officers and Auditors

Directors’ Meetings

Non-Audit Fees

Corporate Governance Report

1. Management and Oversight

2. The Board

3. Ethical and Responsible Decision Making

4. Integrity in Financial Reporting

5. Timely and Balanced Disclosure

6. Rights of Shareholders

7. Recognise and Manage Risk

8. Remunerate Fairly and Responsibly

RECKON LIMITED

DELOITTE TOUCHE TOHMATSU

Independent Auditor’s Report to the Members of Reckon Limited

Report on the Financial Report

Directors’ Responsibility for the Financial Report

RECKON LIMITED Annual Report 2012