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Risk Type in an International Sample of Auditors by Geoff Trickey, So Yi Yeung & Keith McGrane Commissioned by RABQSA

Executive Summary This project was carried out in conjunction with RABQSA; sampling auditors in Canada, the USA and Australia (N = 198). The aim of this research was to identify any systematic patterns in the natural disposition towards risk-taking of the sample, classifying each participant according to a taxonomy of eight Risk Types. Risk Type is considered to reflect deeply rooted dispositions that embrace perception of risk, risk tolerance and propensity for risk-taking. A second questionnaire explored current attitude towards risk-taking in five commonly researched areas of risk; recreational, social, financial, ethical and health & safety. The results of our analyses show a very distinct Risk Type distribution for the auditor sample with a clear prevalence towards the Deliberate and Composed Risk Types. Across the sample, the study found little differentiation in terms of prevalent attitude to risk across the five domains. Our analysis also differentiates between job level, job title, certification length and country of origin.

Introduction The Risk-Type Compass™ captures the aspects of personality that influence a person’s perception of risk, readiness to take risks and ability to cope with it. It categorises each individual as one of eight Risk Types as well as generating a Risk Tolerance Index (RTi). The Risk-Type Compass™ questionnaire is based on personality assessment techniques, building this more focused assessment on the accumulated knowledge that has produced a considerable global consensus about the structure of personality; the Five Factor Model (FFM). Risk Type is considered to be a component of temperament and, like other personality attributes, to be deeply rooted and consistent over a working life. Under stress and pressure, behaviour is likely to regress and become increasingly instinctive and we are likely to revert to type. In its original and fullest form of the assessment, a second questionnaire explores differences in attitude towards five different risk domains; recreational, social, financial, ethical and health & safety risk. In the view of the authors, risk attitude reflects a person’s circumstances, their experience and a wide range of relatively transient and unsystematic influences. As such, any attitude assessment provides a ‘snap shot’ at a moment in time, rather than a pervasive longer-term influence. Although attitudes are variable, easily influenced ‘surface’ characteristics, assessments have tended to focus on attitude rather than on personality, partly because the type/attitude distinction had not previously been articulated, partly because risk assessments had no consensual basis and partly because of the absence of any psychometric measures that specifically address risk. The Risk-Type Compass™ assessment was designed to allow people management and staff deployment to take account of these deeply rooted characteristics, to enable a more coherent articulation of human factor risk and to promote a better understanding and self-awareness in those who manage risk and employees in other risk related roles. It provides insights that can easily be missed by interviews, simulations or short-term behavioural observation.

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The Risk-Type Compass™ The Risk-Type Compass™ is a personality based psychometric instrument that provides a comprehensive assessment of an individual’s propensity for risk taking, their perception of risk, their current appetite for risk, their decision making style and an overall estimate of risk tolerance. It is important to appreciate that within this Risk Type model, perception of risk, propensity for risk taking and style of decision-making are inseparable. The most extreme risk takers read uncertainty as safe until proved otherwise, whilst the risk averse read uncertainty as risk until proved otherwise. Similarly, their decision-making style cannot help but be influenced by their anxiety, impulsiveness, stress tolerance and prudence. Many of the influences on risk taking that are incidental, transient, and unsystematic; unpredictable influences that are incapable of quantification. This ‘noise’ in the system has obscured the consistency of the human risk factor. We have to accept that there must always be uncertainties associated with risk and risk taking but also recognise that individual propensity for risk has the consistent and pervasive influence alluded to above. At its simplest, there are two reasons why people take risks. One is concerned with a lack of fear and anxiety and the other concerns impulsivity and thrill seeking. Combined with their opposite extremes, these create the four poles of the Risk-Type Compass™. The fact that we will all register somewhere on each of these scales and the possibility of being high on either, neither or both, creates the possibility of eight different Risk Types.

Risk Types Descriptions SPONTANEOUS Uninhibited and excitable, this Risk Type enjoys the spontaneity of unplanned decisions. They are attracted to risk like moths to a flame, but are distraught when things go wrong. Their passion and imprudence make them exciting but unpredictable. INTENSE The Intense Type tends to be highly-strung, pessimistic and nervous about any threat to their equilibrium. In extreme examples, personal relationships and decision-making can become an emotional minefield. Passionate and self-critical by nature, they react strongly to disappointment, taking it personally when things don’t work out. WARY Self-disciplined and cautious of risk, the Wary Type is organised but unadventurous and puts security at the top of the agenda. They will be drawn to the idea of securing their future but anxious that however well something worked for others, in their case it will go wrong.

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PRUDENT Very self-controlled and detailed in their planning, the Prudent Type is organised, systematic, conservative and conforming. Conventional in their approach, they prefer continuity to variety and are most comfortable sticking to what they know. DELIBERATE Self-confident, systematic and compliant, the Deliberate Type tends to be unusually calm and optimistic. They experience little anxiety and tackle risk and uncertainty in a business-like and unemotional way. They never walk into anything unprepared. COMPOSED The Composed Type is cool headed, calm and optimistic, but at the extreme may seem almost oblivious to risk and unaware of its effect on others. They take everything confidently in their stride, seem quite imperturbable and manage stress well. ADVENTUROUS The Adventurous Type is both impulsive and fearless. At the extreme, they combine a deeply constitutional calmness with high impulsivity and a willingness to challenge tradition and convention. Intrepid and never discouraged, they quickly rebound from any setback. CAREFREE Spontaneous and unconventional, the Carefree Type is daring, excitement seeking and sometimes reckless. Not good at detail or careful preparation, they often seem unclear about their objectives. Their impatience and imprudence can lead to hasty and unwise decisions. The ‘Typical’ group Individuals who show none of the extremes that characterise other Risk Types are classified as ‘Typical’. Because they score close to the centre they will not naturally be exceptionally prudent or unusually reckless, neither will they be particularly emotional or extremely calm. Any pronounced risk-taking behaviours will likely be due to attitudes developed from specific experiences.

RABQSA RABQSA is an internationally recognised personnel and training certification body for auditors in a range of disciplines, including Quality, Environment, Occupational Health and Safety, and Food Safety; it is responsible for assessing the competencies and requirements of auditors in various industries. Auditors are required to look for risks, assess their likelihood of occurrence and the severity of the risk, in the event that the risk is realised (Holtmann, 2011). Career guidance and occupational selection research links career success to particular personality characteristics; being imaginative for creative roles or agreeable for customer services, for example. The main risk for professionals in this sector is an incorrect or incomplete audit. This has a direct impact on the end user and can result in products being recalled for Health and Safety reasons. All occupations and professions have their own particular axis of risk but in auditing this is central to their purpose and the nature of their task. Research has demonstrated in a number of other professions that practitioners show a degree of convergence of Risk Type. Because of the emphasis on caution and attention to detail, it was anticipated that those working in auditing roles would tend towards a specific personality profile. It is likely that certain risk types would be more prevalent; specifically, a greater disposition towards the Risk Types emphasising an apprehensive, careful and cautious approach to risk-taking.

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Hypotheses Hypothesis 1: That the emphasis on precision, procedure and attention to detail that is characteristic of the auditing process will result in a professional profile shaped in some way by these requirements; either through processes of attraction, selection and attrition (Schneider, 1987), or through assimilation of attitudes and influences of the culture within the auditing professions. Hypothesis 2: That personality and, more specifically, Risk Type will have a greater influence than risk attitude in shaping the auditing professions.

Process This project was carried out in conjunction with RABQSA, sampling auditors in Canada, the USA and Australia (N = 198). Auditors on the RABQSA database were invited to complete the Risk-Type Compass™ questionnaires for Risk Type and Risk Attitude. The assessments were offered online. They were also asked to provide demographic information about their role as well as any specialism, date of qualification, working arrangements, job level, country of origin and country of professional certification. The aim of this research was to identify any systematic patterns in the disposition towards risk of survey participants using the taxonomy of Risk Type in a sample of auditors. The results of our analyses show a very distinct Risk Type distribution for the auditor sample.

Results 198 auditors completed the questionnaires online. Analyses were conducted to examine the proportion of Risk Types across the whole sample of 198 auditors. Further analyses were conducted investigating the different demographic data that included different job titles (e.g. consultant, internal auditor, lead auditor), job levels (e.g. non-managerial, junior manager, middle manager etc.), working arrangements (freelance or permanent), certification country and country of origin (Australia, Canada or USA) and certification period (ranging from less than 1 year to 15 years). The results were analysed and compared with a ‘general population’ sample of 2,000 working adults from a broad range of occupations. Within the general population, there is a broad balance of each of the eight Risk Types. However, the results from the RABQSA sample suggest that there is a strong tendency for members of the auditing professions to cluster in one area of the Risk Type Compass™; the Deliberate and Composed Risk Types account for just under 60% of the sample.

Risk Type Distribution in the RABQSA Sample Figure 1. Percentage of each Risk Type in the RABQSA sample (a further 8% of the sample fell into the Typical category)

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Figure 2. Risk Type Distribution in the R-TC Database

The highest proportion of the sample are designated as the Deliberate type (37%), described as being “rooted in a high level of calm self-confidence combined with detailed preparation and planning”. The second most common Risk Type is the Composed Type (22%), described as having “high levels of poise, self-belief, optimism and resilience and being imperturbable and even-tempered”. These results suggest that the auditor sample is broadly composed of individuals who work well under pressure, are optimistic and prefer a structured, methodical, procedural approach to their work. The systematic and level-headed approach adopted by Deliberate types and their ability to keep their nerve, is particularly suited to working environments characterised by high responsibility, high stress and where the negative consequences for failure are potentially high. Their willingness to do the groundwork necessary to ameliorate risk and to take responsibility for the outcome will make them successful in arenas that would either disconcert the cautious, or defeat more impulsive types. The Deliberate Type would serve to counter-balance groups that are influenced by some of the more emotionally volatile, disorganised or impulsive Risk Types in any team. Composed Types share many attributes with Deliberate Types (reflecting the merging of adjacent Risk Types around the spectrum of the Risk-Type Compass™), however they are more likely than Deliberate Types to be flexible about procedures and open to alternative approaches. Neither extremely cautious nor overly impulsive, their confidence and optimism will make them comfortable about change. The opposite to the Deliberate Type is the Spontaneous Type, characterised as being passionate and enthusiastic in their commitments, open to change and being prone to impulsivity. This Risk Type is far less representative of the auditor sample, composing only 5% of the group. There are no group members that are at the extreme limits of risk tolerance as measured by the Risk Tolerance Index (RTi; a 0 to 100 scale, mean score 50). 10% of this sample falls into the Adventurous Type, the most intrepid Risk Type, but none were extreme examples. At the other end of the spectrum, just 5% of the sample were classified as Wary Risk Types who combine deep-seated anxiety with a challenging, unpredictable approach but, again, none were extreme examples. As a consequence, the average RTi for the sample was 50.1; right on the mean. This suggests that risk tolerance of auditors as a whole is no more or less than the population in general.

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Distribution of auditor Risk Types compared to the general population The distribution of Risk Types in the sample of auditors was compared to the general population sample. The contrast shown on Figures 3 & 4 between the general population and the auditor sample distribution of Risk Types further illustrates that specific factors are influencing attraction, recruitment and retention within these professions. Additionally, the graphic clearly highlights that there is significant under representation of other Risk Types. There is an almost complete absence of the Carefree Risk Type and Intense and Spontaneous Risk Type representation is also very limited. These are associated with approaches to risk that may be impulsive, unconventional and emotionally charged suggesting that, by and large, auditors in general are likely to be less passionate, less emotional and less spontaneous than others. Figures 3 & 4. Percentage of each Risk Type in RABQSA auditing sample in comparison to the general population

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Risk Attitude Assessment of an individual’s propensity for risk has, in the past, most often presumed that risk attitude would be the crucial variable. The research approach adopted in this area has emphasised the situational nature of attitudes, reflecting the widely held assumption that reactions to risk are in fact related more to situational variables than individual variables. As a consequence, risk attitude research frequently differentiates between different kinds of risk situations, commonly focusing on ethical, financial, health, recreational and social domains. This model is also adopted by the Risk-Type Compass™ but, as a complement to Risk Type, and in recognition that; a) the risk attitude approach has been very influential and needs to be addressed, but that; b) in comparison to the personality based approach of the Risk-Type Compass™, this is a relatively superficial and short term feature of personal risk reactions. As such, we view this element of the Risk-Type Compass™ as offering a ‘snap shot’ of current attitudes that sit above the more consistent and deeply rooted Risk Type dispositions. Figure 5. Percentage of most prevalent risk attitudes in RABQSA sample modelled against the general population

Analysis of the Risk Attitudes of auditors in comparison to the general population demonstrated that overall, the distribution of Risk Attitude within the auditor sample had few distinctive characteristics (covered by a range of 8% points). There was a relatively even distribution of Risk Attitude across each of the domains, with the sample being rather less comfortable taking health and recreational risks than ethical, financial or social risks. Taken alongside the Risk Type findings described above, and to the extent that these findings are generalisable, it suggests that the prudence of auditors may be even more influential in the realms of physical wellbeing.

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Risk Type and Job Title We also conducted the analyses to examine the proportion of each Risk Type falling within the various auditing job titles. The most significant across all job titles is the Deliberate Risk Type; Internal Auditors displayed the highest proportion of the Deliberate Risk Type and Consultants the lowest proportion of Deliberate Risk Type. Interestingly, amongst Engineers and Lead Assessors there is a higher proportion of the Composed Risk Type, which shares many similarities with the Deliberate Type. Composed Types have a similar tendency to be resilient and adaptable but they are typically less detail-conscious, orderly and systematic than Deliberate Types. Statistical analysis examining the difference in mean Risk Tolerance Index scores across the different job titles was conducted. Analyses found a non significant effect of job title on the Risk Tolerance Index at the p < .05 level [F(7, 141) = 1.44, p = .193]. This suggests that there was no statistically significant difference in the average Risk Tolerance Index scores across the different job title categories, however, this finding may also be influenced by the small sample sizes within those categories. Figure 6. Percentage of each Risk Type within each Job Title category

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Risk Type and Job Level In Figure 7 the focus is on job level and the graph shows the proportion of the sample that falls within each of the Risk Types for each of the five job levels investigated. This data reflects again the overwhelming prevalence of the Deliberate Risk Type within the auditor sample. For all job levels, Deliberate Risk Types dominate. While the distribution of the whole sample across the eight Risk types is very distinctive, there is very little representation of the two extremes of risk tolerance; Wary (very low tolerance) and Adventurous (very high tolerance) Risk Types. An interesting trend emerges with regards to the Prudent Risk Type; the proportion of Prudent Risk Types increases consistently as job level increases. Yet, paradoxically, the Director level is the only category that includes the Carefree Risk Type and, generally, there is a more even distribution of types. This suggests that, for the most senior roles, there are perhaps some benefits in being more flexible and open to different possibilities. Statistical analysis examining the difference in mean Risk Tolerance Index scores across the different job levels was conducted. Analyses found a non significant effect of job level on the Risk Tolerance Index at the p < .05 level [F(4, 117) = .914, p = .458]. This suggests that there was no statistically significant difference in the average Risk Tolerance Index scores across the different categories. However, as with the analyses across job titles, this non significant difference may be due to the small sample size in each of the categories. Figure 7. Risk Type distribution by Job Level category

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Risk Type and Working Arrangements Through examining the differences in Risk Type distribution between freelance or contract work and permanent work, it was evident that the proportion of individuals in each Risk Type differed according to working arrangements. For example, individuals working on a freelance basis tended to be more in the Composed and Adventurous Risk Types. On the other hand, individuals working on a permanent basis tended to be more in the Deliberate and Wary Risk Types. This is in line with the expectation that those working independently and without the security and tenure typical of permanent employee positions would need greater resilience, optimism and self-belief, traits associated with both the Composed and Adventurous Risk Types. The difference in mean Risk Tolerance Index scores across auditors in freelance or permanent positions was investigated using independent sample t-tests. This found a significant different in the Risk Tolerance Index for freelance (M=57.18, SD = 17.85) and permanent (M = 52.23, SD = 15.84) conditions; t(194) = 2.02, p = 0.045. The results suggest that auditors working on a freelance basis have a significantly higher Risk Tolerance Index score than auditors working on a permanent basis. Again, this finding ties in with the idea that individuals working on a freelance or contract basis may have a lower desire for security and greater resilience, characteristics associated with those of a higher Risk Tolerance. Figures 8 & 9. Risk Type distribution by Working Arrangements

45   40   35   30   25   Freelance  or  Contract   20  

Permanent  

15   10   5   0   Wary  

Prudent  

Deliberate  

Composed   Adventurous   Carefree   Spontaneous  

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Intense  

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Risk Type and Certification Country Risk Types of Auditors in the sample were found to differ in terms of the country of their certification. A high proportion of individuals from the USA were in the Deliberate and Composed Risk Types, with no individuals in the Carefree or Intense Risk Types. Individuals who were certified in Australia tended to be in the more Intense, Carefree and Adventurous Risk Types; whilst individuals certified in Canada were more Prudent than either USA or Australia. Statistical analyses were also conducted to examine differences in Risk Tolerance Index scores across different certification countries. Analyses found a non significant effect of certification country on the Risk Tolerance Index at the p<.05 level for the three countries, Australia, Canada and USA [F(2, 180) = 2.27, p = 0.107]. This indicates that the mean Risk Tolerance Index score across the three countries does not offer a statistically significant difference. Figures 10 & 11. Risk Type distribution by Certification Country 50   45   40   35   30   Australia  

25  

Canada  

20  

United  States  

15   10   5   0   Wary  

Prudent  

Deliberate  

Composed   Adventurous  

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Carefree  

Spontaneous  

Intense  

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Risk Type and Certification Period Having collected demographic data that looks at differences in Risk Type by certification length (i.e. 1-4 years, 5-10 years, 10-15 years), there appears to be a greater proportion of experienced auditors in the Deliberate and Composed Types (most characteristic Risk Types of the auditor sample). This suggests that, over time, there are benefits in being resilient, calm, optimistic and able to deal methodically with disappointments, problems or the unexpected. The clustering of scores between the Prudent and Composed points of the compass and the under-representation of other Risk Types is quite striking. Statistical analyses of the difference in mean Risk Tolerance Index scores found a non significant effect of certification length [F(3, 186) = 0.063, p = 0.979)], indicating there was no significant difference in the mean Risk Tolerance Index value across the four certification length periods. Figures 12 & 13. Risk Type distribution by Certification Period

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Do Auditor Risk Types Differ Cross-Cultrually? Risk Types across the USA, Canada and Australia each yielded similar trends in that across all three groups, the Deliberate Type was the most prevalent followed by the Composed Risk Type. Interestingly, the USA sample consisted of dramatically fewer Prudent Types than the Australian and Canadian samples. The USA sample was generally less likely to fall into any of the risk-averse types (i.e. Wary, Intense, Prudent). This is further emphasised by the finding that there was a significant effect of country of origin when investigating the difference in mean Risk Tolerance Index scores [F (2, 170) = 3.55, p = 0.031]. Post hoc comparisons using the Gabriel test indicates that the mean score for the auditors originating from Australia (M= 51.71, SD = 17.43) was significantly lower than auditors originating from the USA (M = 58.32, SD = 14.84). Figures 14 & 15. Risk Type distribution by country of origin

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Returning now to our two hypotheses: Hypothesis 1: That the emphasis on precision, procedure and attention to detail that is characteristic of the auditing process will result in a professional profile shaped in some way by these requirements; either through processes of attraction, selection and attrition (Schneider, 1987), or through assimilation of attitudes and influences of the culture within the auditing professions. Firstly, this research project has provided a quite striking and distinctive picture of the auditing profession, at least so far as this RABQSA sample is concerned. Throughout the data set and across the various demographic categories addressed, there is a remarkable consistency in the prevalence of Risk Types, with the balance skewed strongly in favour of the Prudent, Composed and Deliberate Risk Types. Conversely, of course, the sample is equally characterised by the absence or under-representation of the other five Risk Types. The Risk Types that predominate are clearly aligned with the â&#x20AC;&#x153;precision, procedure and attention to detailâ&#x20AC;? involved in auditing, as are the calm, composed and unemotional characteristics associated with them. Secondly, the distinctiveness of this auditor data is matched by our data for other professions. Data for recruiters, engineers, IT and police also show a distinctive pattern of Risk Types, each different from the others and different to the RABQSA sample.

These alignments of Risk Type personality characteristics with the nature and requirements of these professions strongly support Hypothesis 1.

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Hypothesis 2: That personality and, more specifically, Risk Type will have a greater influence than risk attitude in shaping the auditing professions. There is, of course, another potentially explanatory factor behind the convergence demonstrated by these data, namely that the culture within the auditing profession ‘shapes’ those who work in this area. Whether or not this is a major factor, it will certainly have some influence and may explain the few cases where participants in this study were of the less prevalent Risk Types. People, it has been argued, create culture, but they are surely also influenced by it and the scenario of an errant Risk Type being acculturated into more compliant behaviours by the prevailing culture is certainly plausible. An attitude is more a position that has been arrived at than a driving force that’s taking us somewhere. Alternative usage emphasises position, feeling, inclination (the principal axis of an aeroplane) or bodily posture. The implication in some usage may be that it is an influence rather than the product of influence so there are definitional difficulties with the term. Many uses of the term, imply that attitudes are transient. Attitude towards financial risk, for example, changes with the economic climate. Record levels of borrowing are reversed to achieve record levels of repayment when an economic bubble finally bursts. Although there is no real consensus about the meaning of ‘attitude’, the predominant usage, we would argue, places it towards the Nurture end of the Nature/ Nurture dichotomy. Conversely, the theoretical and academic foundations of the Risk-Type Compass™ lie firmly within the domain of personality psychology and personality measurement and there is strong evidence, from genome research and the classic twin studies, that personality has significant genetic determinants. Disposition towards risk also has to be an important determinant of evolutionary survival and, for this reason alone, must be expected to have genetic roots. Furthermore, ‘Fight and Flight’ responses are part of the biological make up of most mammals and, in our own species, have their physiological roots in the oldest parts of the central nervous system. In effect then, Hypothesis 2 raises Nature vs Nurture issues and over recent years of progress accelerated by genome research this debate has mover on from ‘either/or’ arguments in recognition of the interaction and cooperation between the two during the journey from genotype to phenotype. Returning to our data, variability in Risk Attitude across the sample showed a modest differentiation between Risk Attitude domains. The complete range of variation across the five Risk Attitude domains was just eight percentage points. This is a sizable sample in which the complexity and detail will be lost in aggregation, so even small differences suggest that there is some systematic effect. The auditor sample seems rather less comfortable with health and recreational risks than ethical, financial or social risks, and this may reflect the greater familiarity with, and understanding of, ethical, financial and social risk dynamics. Certainly ethical and financial themes have a considerable affinity with the nature of the auditor role. The nature of the issue, the uncertain definition of ‘attitude’ and the limitations of the scope of our study will not allow a definitive answer to the question posed by Hypothesis 2. At a purely conceptual level, our understanding of attitude as more superficial and Risk Type as more deeply rooted is, we believe, very plausible and generally supported by these findings.

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Risk Type in an International Sample of Auditors  

White paper commissioned by RABQSA

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