Small practitioners ignore SME foreign currency risk

Small practitioners should be doing more to ensure their SME clients actively manage any foreign exchange (FX) exposure in order to minimise risks, according to a report from ACCA.

The institute's research shows a third of small or medium sized accountancy practices (SMPs) have SME clients with exposures to foreign exchange risk, but that fewer than a quarter play an active role in helping those clients manage this.

ACCA's findings are based on a survey of some 1350 SMPs worldwide, most of them based in the UK, Ireland, South Africa, Romania and Turkey. This showed that 71% of these small practices had SME clients with at least some international activities. On average 17% earned more than a quarter of their income from internationalised SMEs, although this was much higher in countries strongly exposed to international finance such as Romania, where the proportion rose to more than half.

Emmanouil Schizas, ACCA senior economic analyst, said: 'Fluctuating exchange rates can leave SMEs out of pocket if their revenues and costs are in different currencies, and could prove particularly damaging for SMEs with debt denominated in foreign currencies. It makes sense for them to seek advice, and for their financial advisers to take an interest.'

ACCA said earlier research showed that FX exposures at SMEs typically amounted to 19% of revenue, but most were hedging only half of this and many had no protection at all. Its analysis suggested that practitioners with a strong network of professional contacts, especially overseas, tended to be more proactive in advising clients' on how they manage FX exposures.

Schizas said: 'Practitioners who invest in providing such businesses with relevant advice and services have a lot to gain in return - not just in countries where foreign exchange rate volatility can threaten businesses' survival, but everywhere and as a matter of course.'

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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