HARMONIZING EXTERNAL AND INTERNAL FINANCIAL REPORTING BY OPERATING SEGMENTS

The segment reporting system proposed in this paper is specific by both respecting disaggregation criteria for internal segment reporting needs and at the same time forming information basis for required aggregation of homogeneous economical items for external reporting needs. By satisfying internal and external reporting principles, the aims of harmonized financial segment reporting are achieved at the same time. The regulations of International Financial Reporting Standards require that data disclosed in basic financial statements be fully reconciled with data disclosed by operating segments. It is established which parameters best conduct the operating segmentation that will satisfy the needs of both external and internal reporting equally but also how to optimally determine the volume of operating segment. The new concept of harmonized external and internal financial segment reports is supported. These reports offer preview of business processes based on responsibility accounting and uncover individual contribution of each business segment to the total result of the entity, by full affirmation of management approach. The importance of harmonizing internal financial reports by segments with external financial reports is proved. It is expected that these statements portray a cohesive financial picture of a given entity’s business activities, with appropriately structured vertical and horizontal relationships between particular items of financial reports, by making easier the possibility of assessment the amount, timing and uncertainty of the future cash flow, liquidity and financial flexibility of the entity as a whole, as well as its operating segments. A generally acceptable assessment model of external and internal segment reporting harmonization is nominated in several different industries and tested on the selected sample of entities.