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September 4, 2013

SMEs’ currency risk on the rise but overlooked by SMPs, ACCA

According to a report by the Association of Chartered Certified Accountants (ACCA) less than a quarter of small or medium-sized accountancy practices (SMPs) actively help their clients to handle exchange-rate risk.

According to ACCA, one in three SMPs have small and medium-sized (SME) clients with exposure to foreign exchange risk.

ACCA’s report is based on data from a survey of the International Federation of Chartered Accountants (IFAC), who surveyed 1,350 SMPs of IFAC’s member bodies, most of which in South Africa, Romania, Turkey, the UK and Ireland.

The survey revealed 71% of the SMPs questioned had SME clients with some international business, with 17% earning more than a quarter of their income from SMEs who have international activities.

Another finding of the survey was that in countries where the economy was significantly exposed to international finance, the proportion of SMPs that relied on internationalised SMEs was higher.

"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," ACCA senior economic analyst Emmanouil Schizas said.

He added that makes sense for them to seek advice and for their financial advisers to take an interest.

However, a previous report by ACCA found that SMEs had 19% of revenue exposed to currency risk and that the average business did not hedge around half of its exposure while many had no protection whatsoever.

According to ACCA, although the risk of exchange-rate exposure was most understood in practitioners in regions where major fluctuations occurred regularly, in others SMPs’ understanding was reduced.

ACCA said that it "took a ‘critical mass’ of exposed clients (or a small number of critically exposed ones)," to make SMPs invest in advising their clients on the risks currency exposure.

The report stated that "practitioners with a strong network of professional contacts, especially overseas," were more inclined to be proactive in relaying advice to their clients on this risk.

Related link

The Association of Chartered Certified Accountants

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