New report challenges practitioners to tackle SME clients’ foreign currency risk | ACCA Global
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Overall, SMEs with international ambitions tend to grow faster and generate more profits, as well as greater demand for professional advice. 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
—Emmanouil Schizas, senior economic analyst, ACCA

Survey shows few small practitioners involved in FX transactions

One in three small or medium sized accountancy practices (SMPs) have small and medium sized (SME) clients with exposures to foreign exchange risk, says a new report from ACCA (the Association of Chartered Certified Accountants), yet fewer than a quarter of those take an active role in helping their SME clients manage FX risk. 

ACCA’s report drew on data from a 2013 global survey of 1,350 SMPs, most of them in South Africa, Romania, Turkey, the UK and Ireland. The survey found that 71% of these small practices had SME clients with at least some international activities, and 17% earned more than a quarter of their income from internationalised SMEs. In some countries strongly exposed to international finance, the percentage of SMPs heavily dependent on internationalised SMEs was much higher – in Romania, for instance, it 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.'

An earlier report by ACCA and peer-to-peer FX hedging platform Kantox, released in April, found that FX exposures at SMEs and mid-market companies were significant (at a typical 19% of revenue). Yet, the typical business barely hedged half of this exposure, and many had no protection at all. 

Based on figures from its widely-cited Global Economic Conditions Survey, ACCA believes that practitioners are most aware of FX risk in parts of the world where major fluctuations make regular headlines, or regions where a lot of foreign-denominated trade and financing takes place, such as the Middle East or Central and Eastern Europe. 

In other parts of the world, however, SMPs’ awareness was lower. While it was relatively easy for SMPs to become involved in managing client transactions in foreign currencies, it took a ‘critical mass’ of FX-exposed clients (or a small number of critically exposed ones) to convince practitioners to invest resources in advising clients on managing foreign currency risk.

The ACCA’s analysis demonstrated 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. Those who did tended to be particularly motivated to build their brands around successfully internationalised clients.

Emmanouil Schizas added: 'Overall, SMEs with international ambitions tend to grow faster and generate more profits, as well as greater demand for professional advice. 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.'

  • Full survey findings can be found in the ACCA Accountants for Small Business report SMEs and foreign exchange risk: are small and medium-sized accountancy practices up to speed?
  • Other reports referred to include the ACCA and Kantox report Hedging FX Risk: Taking stock of the challenge for mid-caps and SMEs and the Edinburgh Group study Growing the global economy through SMEs
  • At the beginning of 2013, the Edinburgh Group, a coalition of 14 accountancy bodies around the world created to champion small and medium-sized enterprises (SMEs) and small and medium-sized accountancy practices (SMPs), commissioned a substantial survey among its members. The aim of the survey was to find out more about the extent of international activity among SMPs’ clients, the challenges those SMEs face in developing themselves internationally, the support available to SMEs and any further assistance governments could provide. A total of 1,350 SMPs from over 70 countries on all continents were surveyed, with the strongest responses received from South Africa (24.1%), the UK (21.6%) and the Republic of Ireland (16.8%); and adequate samples also received from Romania 6.9%) and Turkey (4.6%). Headline findings from this research were published by the Edinburgh Group in June 2013 under the title, Growing the Global Economy Through SMEs (Edinburgh Group 2013).