C-PEM Introduction Webinar

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13 Δεκ 2013 (πριν από 3 χρόνια και 9 μήνες)

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© Copyright FocusROI Inc
2010

C
-
PEM Introduction

Webinar

Stuart Hartley FCA

shartley@focusroi.com


© Copyright FocusROI Inc
2010

Agenda..


C
-
PEM challenges and solutions


Tips for reducing the cost of audits


Other changes in C
-
PEM






© Copyright FocusROI Inc
2010


Introducing C
-
PEM


Released in June 2010



Volume 1 Core concepts


Audits, reviews and
compilations



Volume 2 Practical Guidance

Includes 2 integrated case studies


Part A

Audits


Part B

Reviews


Part C

Compilations


Part D

Practice Aids


(forms, etc. on a CD)

© Copyright FocusROI Inc
2010

The C
-
PEM Case Studies


Case Study A
Cambridge Furniture Inc.

Case Study B
Kennedy & Co.

Business
Furniture manufacturing
$1.5 million $ 230,000
8 2 + owner
Sales
Staff
Furniture manufacturing
Sample audit
documentation
provided in C-PEM
Volume 2
Primarily
standard C-PEM
forms
Primarily
memos to file
and condensed
C-PEM forms
© Copyright FocusROI Inc
2010

C
-
PEM Challenges & Solutions ….

1.
Auditing standards have been clarified/revised


Major changes


The C
-
PEM
Solution


2.
Multiple Financial Reporting frameworks


Major changes


The C
-
PEM Solution


3.
Applying CASs to Micro Sized Entities


The C
-
PEM Solution


4.
Reviews, compilations and other


© Copyright FocusROI Inc
2010

Challenge #1


ALL Auditing standards have
been clarified
--

some revised
(Re
-
written!)


© Copyright FocusROI Inc
2010

“Clarified” Standards


Italics

to specific “
shalls




New structure for auditing standards

1.
Introduction

2.
Objectives

3.
Definitions

4.
Requirements (the auditor
shall…
)

5.
Application and Other Explanatory Material




Current
Italics

Change in number of paragraphs (not content)

"Shalls"

282

A
100
% increase in
requirements

532

© Copyright FocusROI Inc
2010

Impact of Clarified Standards


Plus


Structure makes them easier to read/use


Framework provides a consistent approach



Shalls
” make
very clear
what is required



Minus



Shalls
” make
very

clear what is required


Standards are more prescriptive


Change in practice is required


New terminology to learn


© Copyright FocusROI Inc
2010


The CAS Structure

1.




2.



3

Plan the audit

Perform

risk assessment

procedures

Evaluate the audit

evidence obtained

Prepare the

auditor’s report

R

i

s

k



A

s

s

e

s

s

m

e

n

t

R

i

s

k



R

e

s

p

o

n

s

e

R

e

p

o

r

t

i

n

g

Implement

responses

to assessed RMM

© Copyright FocusROI Inc
2010

CAS 200
-

Overall Objectives


200.18


The
auditor shall
comply with all CASs
relevant to the audit. A CAS is relevant
to the audit when the CAS is in effect and the circumstances addressed by the
CAS exist.



200.19


The
auditor shall have an
understanding of the entire text
of a CAS, including
its application and other explanatory material, to understand its objectives
and to apply its requirements properly.



200.21


To achieve the
overall

objectives of the auditor,
the auditor shall use the
objectives stated in relevant CASs

in planning and performing the audit

© Copyright FocusROI Inc
2010

Tip 1…


Read & understand the CAS requirements


CICA Handbook Part 1


C
-
PEM Volumes 1 and 2


Use of C
-
PEM Forms and practical aides



Staff training courses


Webinars, etc.

Applying the new CASs effectively
requires

an
investment
to be made

© Copyright FocusROI Inc
2010

Overall objective:

Reduce audit risk to an acceptably low level

Overall Audit Objectives
CAS 200
Specific CAS Objectives

CASs 210-720
47
“shalls”
11
“shalls”
474
“shalls”
Application
material
Application
material
Application
material
Firm Wide QC
CSQC1
“Reducing audit risk to an acceptably low level”
© Copyright FocusROI Inc
2010

CASs with more than 5 new “
shalls


CAS

CAS Title

Italics

Shalls

New

Old HB

CAS 600

Audits of group financial statements

7

40

33

6930

CAS 700

Forming an opinion/reporting on F/S

12

38

26

5400

CAS 250

Consideration of laws and regulations

3

18

15

5136

CAS540

Estimates

1

16

15

5305

CAS 570

Going concern

0

15

15

N/A

CAS 550

Related Parties

5

18

13

6010

CAS 705

Modifications to the opinion

10

23

13

5510

CSQC1

CANADIAN STANDARD ON QUALITY CONTROL

35

47

12

GSF 1

CAS 210

Agreeing the terms of audit engagements

5

16

11

5110

CAS 710

Comparative information

2

13

11

5701

CAS 530

audit sampling

0

10

10

N/A

CAS 510

Initial audit engagements


opening balances

0

9

9

various

CAS 560

Subsequent events

3

12

9

6550

CAS 240

Fraud in an audit of financial statements

28

36

8

5135

CAS 450

Evaluation of misstatements identified

3

11

8

5142

CAS 260

Communication with those charged with governance

7

13

6

5751

CAS 505

External Confirmations

4

10

6

5303

CAS 330

The auditor's responses to assessed risks

21

26

5

5143

CAS 580

Written representations

7

12

5

5370

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2010

Objective for Estimates

The objective of the auditor is to obtain sufficient
appropriate audit evidence about whether:

(a)

accounting estimates
, including fair value
accounting estimates, in the financial statements,
whether recognized or disclosed,
are reasonable
; and

(b)

related disclosures
in the financial statements are
adequate,

in the context of the applicable financial
reporting framework.

© Copyright FocusROI Inc
2010

Estimates

5305

Estimates

CAS540

Current

Italics

Subject matter

"Shalls"

Risk Assessment Procedures

2

Identifying and Assessing RMM

2

Responses to the Assessed Risks

3

Further Substantive Procedures

3

Evaluating Reasonableness of Estimates

1

Disclosures

2

Indicators of Possible Management Bias

1

Written Representations

1

1

Documentation

1

1

Totals

16

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2010

R
i
s
k

A
s
s
e
s
s
m
e
n
t
R
i
s
k

R
e
s
p
o
n
s
e
R
e
p
o
r
t
i
n
g
What estimates are required?
Have estimates been prepared properly
using consistent methodology?
Is the supporting evidence reliable?
How were the estimates prepared?
How accurate were prior years
estimates?
Any evidence of management bias?
Any evidence of fraud?
Are
in accordance
with the
of accounting estimates
financial reporting framework?
financial statements disclosures
If a significant risk, has disclosure been
made of the estimation uncertainty?
Obtain management representations
Extent of estimation uncertainty
involved?
How significant are the estimates?
Is an expert required?
C
-
PEM overview of Estimates

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2010

Related Parties

6010

Related Parties

CAS 550

Current

Italics

Subject matter

"Shalls"

1

Risk Assessment Procedures

7

1

Identifying and Assessing RMM

2

1

Responses to the Assessed Risks

5

Evaluating Accounting/Disclosure of Related Parties

1

1

Written Representations

1

1

Communication with Those Charged with Governance

1

Documentation

1

5

Totals

18

© Copyright FocusROI Inc
2010

R
i
s
k

A
s
s
e
s
s
m
e
n
t
R
i
s
k

R
e
s
p
o
n
s
e
R
e
p
o
r
t
i
n
g
Identify related parties including
changes from previous periods
Identify any other related parties and if
found ask why not previously identified
Understand nature, extent and
purpose of transactions
If outside normal course of business
inspect underlying documents.
Obtain evidence to support managements
assertions about the
.
nature, extent and
purpose of transactions
Is financial statement disclosure adequate?
Does audit opinion need to be modified if
insufficient evidence available?
Obtain management representations
Report on any findings
Consider significant risks
Consider potential for fraud
Consider possible fraud
Remain alert for related party
transactions throughout audit
C
-
PEM Overview of Related Parties

© Copyright FocusROI Inc
2010

Use of External Confirmations


5303

External Confirmations

CAS 505

Current

Italics

Subject matter

"Shalls"

Use of confirmations

1

Management's Refusal to allow confirm

2

2

Results of the External Confirmation Procedures

5

Negative Confirmations

1

1

Evaluating the Evidence Obtained

1

1

Confirming accounts recievable

4

Totals

10

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2010

Sampling


Audit sampling

CAS 530

Current

Italics

Subject matter

"Shalls"

Sample Design, Size and Selection of Items for Testing

3

Performing Audit Procedures

3

Nature and Cause of Deviations and Misstatements

2

Projecting Misstatements

1

Evaluating Results of Audit Sampling

1

0

Totals

10

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2010

Subsequent Events


6550

Subsequent events

CAS 560

Current

Italics

Subject matter

"Shalls"

1

Events between Date of F/S and Date of Auditor's Report

4

1

Facts after Date of Report but before Date F/S are Issued

4

1

Facts Known to Auditor after F/S Issued

4

3

Totals

12

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2010

Materiality
CAS 320


Financial
statement
level
‘Overall’
Materiality

Overall’
Materiality
Performance
‘Specific’

Materiality
Performance
‘Specific’
Materiality
Account balance,
class of transactions
and disclosures level
Quantitative amount
$
© Copyright FocusROI Inc
2010

Going Concern


Going concern

CAS 570

Current

Italics

Subject matter

"Shalls"

Risk Assessment Procedures

2

Evaluating Management's Assessment

4

Additional Audit Procedures when events identified

1

Audit Conclusions and Reporting

1

Material Uncertainty Exists

3

Going Concern Assumption Inappropriate

1

Management Unwilling to Extend Its Assessment

1

Communication with Those Charged with Governance

1

Significant Delay in Approval of Financial Statements

1

0

Totals

15

© Copyright FocusROI Inc
2010

Misstatements


5142

Evaluation of Misstatements Identified

CAS 450

Current

Italics

Subject matter

"Shalls"

1

Accumulation of Identified Misstatements

1

Consideration of Identified Misstatements

2

1

Communication and Correction of Misstatements

2

Evaluating the Effect of Uncorrected Misstatements

2

Communication with Those Charged with Governance

2

1

Written Representation

1

Documentation

1

3

Totals

11

© Copyright FocusROI Inc
2010

Challenge #2


Multiple Appropriate Financial
Reporting Frameworks (AFRFs)


© Copyright FocusROI Inc
2010

GAAP until recently


Canadian
GAAP
Private
entity
Listed
entity
Government
entity
Not for
Profit
© Copyright FocusROI Inc
2010

GAAP from 2011 Onwards


ASPE
ASPE
+NFP
IFRS
IFRS
for SME?
PSAB
Private
entity
Listed
entity
Government
entity
Not for
Profit
© Copyright FocusROI Inc
2010

Multiple AFRFs

IFRS

IFRS for
SMEs

ASPE

ASPE +

NFP

PSAB


Number of Pages

2500

220

700

740

?

Focus

Listed
Entities

SMEs

SMEs

NFPs

Govern
ment

Source

IASB

IASB

IFRS and ASPE are Canadian GAAP

© Copyright FocusROI Inc
2010

Challenge #3


Applying CASs to

Micro Sized Entities



In Europe:


Less
than 1 million euros in revenue


Equivalent to 1.3 million Canadian dollars


Less
than 10
employees

© Copyright FocusROI Inc
2010

Reality of Micro Entity Audits


Limited number of F/S users


Reduced risk



Unsophisticated

business processes and accounting
systems


Few employees


Ownership is concentrated


Nature/quality of audit evidence available is less than
larger entity



Cost

of an audit


disproportionately high
as compared to larger entities

© Copyright FocusROI Inc
2010

How CASs address SME audits…


“The auditor’s
objectives are the same
for audits of
entities of different sizes and complexities.


This does
not mean
that every audit will be planned/performed in
exactly the same way.



CASs recognize that
specific
audit procedures
to be
undertaken
may
vary
considerably
based on
size

of entity


“Applying ISAs Proportionately with the Size and Complexity of an Entity”

issued by IFAC in August 2009.

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2010

CAS Applicability to SMEs

CAS
Objectives
‘Auditor shall..’
Application &
other material
Larger
entities
Smaller
entities
Practical guidance
+
Considerations Specific
to Smaller Entities
Practical guidance
on meaning and
implementation
© Copyright FocusROI Inc
2010

Overall Audit Scope does not change

Entity Objectives
Financial Statements
& Assertions
Governance
Leadership/management
Revenue
Processes
Other
Processes
Transactions
Purchasing
Processes
Payroll
Processes
P
e
r
v
a
s
i
v
e

P
e
r
v
a
s
i
v
e

(
e
n
t
i
t
y

l
e
v
e
l
)
Information Systems
I
n
h
e
r
e
n
t

R
i
s
k
s
C
o
n
t
r
o
l
s
© Copyright FocusROI Inc
2010

Still Required to Understand Internal Control


Pervasive are

often called entity

level controls







Specific are often

called business

process or

application controls

© Copyright FocusROI Inc
2010

Tip 2…

Do not ignore the ‘Control Environment’.

The
active involvement
of an
owner
-
manager may
serve to
mitigate transactional risks (where
segregation of
duties not possible)
in a small entity;

Control
Environment
© Copyright FocusROI Inc
2010

Traditional Audit Phases


Client
Acceptance
Planning
Form
Opinion
Perform
Procedures
Completed
Checklists
Memo to file
Conclusions
Memo for file
Completed
Checklists
BUT

Where does the required risk assessment fit?

© Copyright FocusROI Inc
2010

Tip 3…

‘Risk assessment’ is
NOT

simply an ADD ON to rest of audit.


Risk assessment should enable the auditor to focus work on areas where the
RMM is the highest and to reduce work on low risk areas.

This applies in any size audit.

Client
Acceptance
Planning
Form
Opinion
Perform
Procedures
Completed
Checklists
Memo to file
Conclusions
Memo for file
Completed
Checklists
+
Risk Assessment?
x

© Copyright FocusROI Inc
2010

Client
Acceptance
Planning
Form
Opinion
Perform
Procedures
Risk Assessment
Risk Response
Reporting
Analytical
Procedures
Prelimimary procedures
Audit pre-conditions
Assessed Risks of material misstatement
at the FS & Assertion Levels
Team Discussions
Overall audit strategy
Tests of
detail
Tests of
control?
Overall Responses
Design Further
Audit procedures
Sufficient appropriate
audit evidence
Conclusions drawn
based on evidence obtained
Evaluate the audit
evidence obtained
Risk assessment
procedures
© Copyright FocusROI Inc
2010

The Solution


Applying C
-
PEM to

smaller entities

© Copyright FocusROI Inc
2010

C
-
PEM


A completely
new version of PEM
that:


Reflects the new clarified CASs



Additional guidance on reviews and
compilations



Aims for an enlarged base of users


An attractive book (in full color
) for partners/staff to
read
on the bus/train/gym workout or at home



More practical “how to” guidance


Integrated case studies and completed forms/memos


© Copyright FocusROI Inc
2010

C
-
PEM

Forms


What C
-
PEM forms to use is always based on professional judgment


C
-
PEM Forms
facilitate:


Compliance with CAS requirements


Ease of use with new objectives and instructions


Capture of relevant audit evidence in one place


Reuse

(after updating)
-

for up to 3
-
4
years


Ease of file review

C
-
PEM Forms require some staff
training
on their use.

Designed for use by a knowledgeable auditor

C
-
PEM


Worksheets

are ONLY to be used
when applicable



Standard
Forms
Condensed
Forms
Memos
(based on forms)
Size of entity
Larger
Smaller
© Copyright FocusROI Inc
2010

Tip 4…
Select
appropriate

Forms to Use

Select

what C
-
PEM forms to use BEFORE work begins

1.
Standard forms

2.
Condensed forms

3.
Memo to file (using standard forms as a guide)


There is no reason why all three types of documentation cannot be
used on the same audit.



If a matter is significant use the standard form, if straightforward use the
condensed and if really simple use a memo.


Worksheets

are only to be used when applicable

© Copyright FocusROI Inc
2010

C
-
PEM forms structure

Financial Statements



100 series

Tax matters




200

File completion



300


Planning




400

Risk Assessment



500

Risk Response




600

Detailed audit plans



A
-
ZZ

Income statement



700

Disclosure checklists



900


Form numbering

NOTE: Some form numbers have changed to better reflect
their position in the audit process

© Copyright FocusROI Inc
2010

Financial Reporting Frameworks


existing GAAP

900



999 FINANCIAL REPORTING FRAMEWORKS


905

FRF



Accounting standards for private enterprises

To come


959

FRF (Financial reporting framework)


Existing Canadian GAAP




Read first

960

FRF


Existing GAAP


General



962

Worksheet

FRF


Income taxes



963

Worksheet

FRF


Long
-
term investments



964

Worksheet

FRF


Leases



965

Worksheet

F
RF


Deferred charges, intangibles and goodwill



966

Worksheet

FRF


Employee future benefits



967

Worksheet

FRF


Financial instruments



968

Worksheet

FRF


Supplementary



970

FRF Supplement


Not
-
for
-
profit entities




© Copyright FocusROI Inc
2010

Key C
-
PEM Forms

Planning (400 series)
Form #
Name
Year 1
Year 2
Year 3
Year 4
Year 5
405-410
Preliminary activities
420
Materiality
424
Scoping
(
+ later

risk assessment)
425
Audit Team Discussions
430
Overall Audit Strategy
435
Risk assessment procedures
New Form prepared
Form Updated
© Copyright FocusROI Inc
2010

TIP 5…

Spend time planning and saving costs

What does this entity do?
Who are the key people?
What are the key risks?
What materiality to use?
Identify financial
statement users and
their needs
How could fraud occur?
Consider opportunities, pressures
and motives. Develop some fraud
risk scenarios.

How will fraud risk be addressed?
What changes are required to audit strategy?
Who is doing what, why and when?
What documentation is required?
How will team communications take place?
What is our response to risks?
Where is (using judgement)
- more work required?
- less or no work required?
What's changed this year?
Any new risk factors
to address?
Audit Team
Discussions
© Copyright FocusROI Inc
2010

Tip 6 …
Scope out low risk areas

Scope out
immaterial/low risk areas

or


Combine

them and treat as one F/S area

Consider where work can be reduced
EACH

year


But consider whether an immaterial area is only small because of
missing transactions

© Copyright FocusROI Inc
2010

Key C
-
PEM Forms

Risk Assessment (500 series)

Form #

Name

Year 1

Year 2

Year 3

Year 4

Year 5

510

Identifying risks through

understanding the entity

520/522

Risk assessment

525

Going concern

530/532

Entity Level control

545
-
560

Control design/implementation

424

Summary of Assessed Risks

New Form prepared

Form Updated

© Copyright FocusROI Inc
2010

Identify & assess risk


Scope of required

risk assessment

CAS 315.11
-
12



Key Point

Identify
sources


of risks not just

effects on the F/S

S
o
u
r
c
e
s

o
f

R
i
s
k
External risk
factors
Internal risk factors
(nature of entity)
Risks resulting from
entity objectives &
strategies
Risks from
accounting
policies used
Risks identified from
use of Industry
performance
indicators
Absence of
relevant
Internal controls
Map sources of
risk to possible
errors/fraud in the
Financial
Statements
* RMM = Risks of material misstatement
How: C
-
PEM 510, 510c


or NFP 510

© Copyright FocusROI Inc
2010

TIP 7 …

Focus on
causes

of risks not the
effects

The effect
Water coming through cieling
The cause
Hole in the roof
Inventory is overvalued Slowdown in economy
Cut off errors found Bookkeeper prone to mistakes
Estimates are conservative Owner wants to minimize taxes
© Copyright FocusROI Inc
2010

Assess Risks in One Place


Source of risk

Result of risk

Risk Assessment

© Copyright FocusROI Inc
2010

Nature of Internal Control

Risks of material misstatement
(RMM)

IC to prevent/detect error

Residual RMM

Low Risk






High risk

Objective = F/S free from material misstatement

© Copyright FocusROI Inc
2010

Control Risk


Two Approaches

Top Down Approach Bottom up Approach
What risks require
mitigation by control?
What risks require
mitigation by control?
Document the operation of
‘relevant’ internal controls
Document internal
controls (cradle to grave)
Are controls actually operating
Perform a walkthrough
Has management mitigated
the RMM in the F/S
Has management mitigated
the RMM in the F/S
What controls in place to
prevent or detect/correct
misstatements from occurring?
What controls in place to
prevent or detect/correct
misstatements from occurring?
Control
Design
Control
Design
Control
Documentation
Control
Documentation
Control
Implementation
Conclusion on
Control Risk
Conclusion on
Control Risk
Control
Implementation
Risk
Identification
Risk
Identification
You only need to evaluate controls ‘relevant’ to the audit

© Copyright FocusROI Inc
2010


Consider using the matrices…

Process xyz













Risk A

Risk B

Risk C

Risk D



Assertion

C

E A

A

C A

Control

IC Com









Control Procedure 1

CA

P





P

Control Procedure 2

IS



D





Control Procedure 3

CA

P

P



P

Control Procedure 4

M

D







Control Procedure 5

CA



P





Control Procedure 6

IS

D

D



D

Conclusion on Control Design

Y

Y


N


Y

Can you identify the control weaknesses, control strengths & key controls?

© Copyright FocusROI Inc
2010

Tip 8 …
Focus on Changes


For risk assessment in year 2
focus
only
on changes


Identify any new risks and related controls


Evaluate whether the relevant controls already
identified are still in operation (implementation)

If risk factors have not changed simply ensure the controls identified in
year one are STILL in operation.

If no change, both control design and implementation

have been addressed

© Copyright FocusROI Inc
2010

Tip 9 …
ROLL FORWARD


Plan for forms to be carried forward and updated



Most planning/risk assessment forms should ONLY be
completed from scratch every 3
-
4 years (unless major
changes have occurred)


Document evidence so that data collected can be
reused.


Focus audit effort in year two onwards on
what has changed

and needs updating



not re
-
documenting existing data

© Copyright FocusROI Inc
2010

Tip 10…
Customize Your Risk Response

Base your response on the risk
assessment
---



Ensure
work is directed to high
risk areas
and away from low risk
areas

© Copyright FocusROI Inc
2010

Key C
-
PEM Forms

Risk Response (600 series)

Form #

Name

Year 1

Year 2

Year 3

Year 4

Year 5

6??

Applicable worksheets such as

overall responses, sampling,

estimates, related parties etc.

645

Litigation, claims and non
-

compliance

650

Subsequent events

670

Use of journal entries

A
-
UU

Detailed audit plans

7??

Income statement

900+

Financial reporting disclosures

New Form prepared

Form Updated

© Copyright FocusROI Inc
2010

File completion

Forming an Opinion (300 series)

Form #

Name

Year 1

Year 2

Year 3

Year 4

Year 5

310

Checklist


Audit completion

320

Notes on significant audit

decisions

335

Worksheet




Summary of

identified misstatements

350

Written representations

360

Legal and other correspondence

370

Worksheet



Matters for future

consideration

New Form prepared

Form Updated

© Copyright FocusROI Inc
2010


Other changes in C
-
PEM

© Copyright FocusROI Inc
2010

Review Engagements


C
-
PEM Material
expanded


Road map


Forms basically
unchanged

The Foundation
The basic understanding of the entity
Volume 2 Chapter 35

Design and performance of review
engagement procedures
Volume 2 Chapter 35, 36
Assess Plausibility
Volume 2 Chapter 37
Review
engagement
report
Vol. 2 Chapter 38
© Copyright FocusROI Inc
2010

Other Material in C
-
PEM


Compilations


Updated material


FOFI


No changes


Primer on fraud


Expanded sampling guidance


Tips for Client Interviews

© Copyright FocusROI Inc
2010

C
-
PEM Summary


A
must

BUY


Comprehensive guide to all the new CASs


Two bound volumes


Illustrations in color


Integrated case studies


Ideal training tool


Extra copies available for staff members


User friendly forms


Practical and flexible practical aids


© Copyright FocusROI Inc
2010

Questions

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