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Defining the Joint Cost in the Field of CSR and Disclosing it in the Financial
Statements: An Initiative to Enrich the Thought of Accounting for CSR

Article · August 2023

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 Defining the Joint Cost in the Field of CSR and Disclosing it in the
Financial Statements: An Initiative to Enrich the Thought of
Accounting for CSR
Younis A. Battal Saleh
B.Sc.-M.Sc.-CPA-CEA
Public Accountant , Expert Accountant And Consultant For Court Of Appeal In
Benghazi-Libya & Lecturer And Researcher In Training Department In HRM Of General
Electricity Company "GECOL" In Benghazi-Libya. E- Mail: [email protected]
P.O. Box 18202 Benghazi-Libya –North Africa .Tel:00218919435120
ORCID ID: https://orcid.org/0000-0002-4209-3132

Abstract
Purpose: This study aims to establish a precise definition of the term ʺjoint costʺ in the
field of CSR and discuss the issues of disclosing this cost in the financial statements.
Method: To raise a meaningful discussion about the meaning of joint cost in the field of
CSR, through which an accurate definition can be developed regarding it, this study
adopted the following concepts: 1) Overlapping CSRs; 2) The real sacrifice; 3)
Independent legal personality; 4) Untargeted social or economic benefits; 5) Mixed costs
resulting from loaning fixed assets and providing non-material assistance such as
advisory services, construction and maintenance works, etc. By adopting the possible
behavior method and its supporting justifications, the researcher will discuss all expected
scenarios regarding the disclosure of these costs in the financial statements. Result: This
study developed a precise definition of the term ″joint cost″ in the field of CSR. This
study provided a meaningful discussion on the issues of disclosure of this cost in the
reports and financial statements. Also, this study identified three basic principles for
achieving transparency when disclosing charitable activities that include a joint cost.
Originality /Value: This study is considered an enrichment of accounting thought in the
field of CSR. This study will enhance the capabilities of companies in the field of
disclosure of their commitment to CSR adequately and transparently. Also, this study is
considered an invitation to international accounting organizations to issue their
recommendations regarding how to disclose in the financial statements about charitable
activities, especially those that reflect the concept of joint cost or whose costs are small
but produce great benefits.

Keywords: Joint Cost .Corporate Social Responsibility. Corporate Philanthropy.

Accounting Disclosure. Accounting for Corporate Social Responsibility.

Abbreviations: Corporate Social Responsibility \ Responsibilities (CSR\CSRs).

Introduction

To improve the social performance of institutions and raise it to the required level, it was
necessary to find methods and mechanisms that allow measuring this performance and
disclosing it in the financial reports of the institution, and this is what prompted scholars
to develop the accounting function to accommodate the achievement of this goal.
Scientists invented the idea of accounting for CSR to use it as a tool for evaluating the
social performance of institutions and to enable those institutions to disclose their social
performance in an acceptable scientific manner.

Accounting for CSR is a new field compared to other fields of accounting. It is still under
development and improvement. There are many challenges and pending issues that have
not received sufficient attention from scholars. One of the most important of these issues
is the joint cost in the field of CSR (the intended social cost in this study is the financial
expenses incurred by companies and not the damages they cause to society). By
reviewing the content of accounting thought for CSR, it was noted that there is no
definition of joint cost in the field of CSR, not even a study that had referred to issues
related to accounting measurement and disclosure of that cost in the financial statements,
despite the possibility of monitoring and observing this type of cost in the field of CSR
with ease. For this reason, the idea of this study came to address this shortcoming.

The meaning of joint cost in the field of CSR can be defined and described through the
following activities:

1) In many cases, the activities carried out by companies to achieve their objectives can
be attributed to more than one of the corporate social responsibilities (economic
responsibility, legal responsibility, ethical responsibility) or to more than one dimension
of corporate social responsibility (the economic dimension, the legal dimension, the
moral dimension). This is what is known as the overlapping of corporate social
responsibilities. Accordingly, the sums of money incurred by companies in such cases
can be considered joint costs.

2) Companies' donations to charities and non-profit organizations in countries that offer

tax exemptions (tax incentives) can reflect the concept of joint cost. The donations
received by charities or non-profit organizations do not reflect the real sacrifice incurred
by the companies due to the government's indirect financial contribution to those
donations. The value of the tax savings that a company obtains from donating to a
charitable organization is the amount of the reduction in that company's income tax. It
represents the value of the indirect contribution incurred by the government as a result of
that donation. Accordingly, the value of the donation provided by a corporation can be
considered a joint cost funded by both the government (executive authority) and the
corporation.

3) Companies' donations to charities and non-profit organizations can reflect the concept
of joint cost when employees participate (with their own money or financial rights that
they have in the companies in which they work) in financing parts of them. For example,
in cases of wars and natural disasters, employees may contribute with their own money or
the financial rights that they own in the company in which they work in financing part of
the value of the assistance provided by their company to those affected.
4) The costs of some activities contribute to the production of untargeted economic or
social benefits. This type of cost can reflect the concept of joint cost.

5) When companies loan their fixed assets such as cars, buses, and machinery to public
sector organizations or non-profit organizations for limited periods of the year or assign
their employees to provide specific services to those organizations- free of charge with no
obligation, the monthly or annual salaries of employees and the annual depreciation
installments for those assets can reflect the concept of joint cost.

Although it is possible to prove the existence of the concept of joint cost in many
financial transactions and charitable activities, the thought of social responsibility
accounting did not provide any clear and accurate definition of that cost. Understanding
the meaning of joint cost in the field of social responsibility will enable companies to
disclose their social performance in a way that does not mislead users of financial
statements and vice versa. It is also unfortunate that the thought of CSR does not yet
define any clear criteria for evaluating the quality of philanthropy. One of those criteria
that the researcher considers necessary to adopt is the gains that the donation achieves for
the beneficiaries (the return of donation), not just the value of the donation. Failure to
understand the intended purpose of companies' involvement in charitable activities-
which is to create the greatest possible benefit for the largest possible number of
beneficiaries, may make companies, especially the large ones, neglect to disclose the
value of small donations, despite the contribution of those donations to achieving great
benefits (that may continue to flow for a long time) - as is the case in many private sector
organizations in the city of Benghazi in Libya.

Joint Cost
Cost is the amount of money needed to buy, do, or make something (Cambridge
Dictionary). Cost is the sacrifice that a company incurs in order to obtain something of
economic value. That thing may be tangible such as materials, machinery, etc. or
intangible such as services ( Daou, 1983 ). There is a difference between the term ″cost″
and the term ″expense.″ The amount of cash paid or liability incurred for a commodity or
service is referred to as the cost of that commodity or service. Expense is that portion of
the cost which has been expired. As the commodity or service is consumed in the
operation of a business enterprise, the consumed portion is converted into the expense.
This is charged to the revenue of the period in which it is consumed. An “expired cost” is
a term used in accounting to denote a cost that has already been used up or whose future
economic benefit is not measurable. In other words, it’s a cost that no longer has the
potential to provide any value or revenue to the company. Although they are often used
interchangeably, the words ″cost″ and ″expense″ are not synonymous.

A Justified View (corporate philanthropy as an investment in reputation)

CSR can contribute to improving a company's image and reputation (Lewis, 2003; Tkalac
& Sinčić, 2018). The company can gain a good reputation in the environment in which it
operates by respecting applicable laws, safeguarding the rights of stakeholders, and
interacting with the issues and aspirations of society in that environment. In short, to gain
a good reputation, the organization must align its interests with those of its stakeholders.
Reputation loss is now a major concern for businesses, and the loss of reputation is
always accompanied by a significant financial loss in the short term and sometimes in the
long term (Alzghoul et al., 2016; Aula, 2010). Also, CSR can contribute to improving and
enhancing the competitive advantage of the company (Margahana,2020). Corporate
social involvement (corporate philanthropy) can contribute to creating a good reputation
and image for companies, and then enhancing their economic performance in the
environments in which they operate (Petrovits, 2006; Probohudono et al.,2020 ). Also,
companies engaged in charitable activities may receive more lenient treatment by
regulators and government officials (Brown et al., 2006; Probohudono et al.,2020 ).

Doing business in a manner consistent with the thought of CSR contributes to the
creation of intangible assets such as reputation and competitive advantage, which
positively affect the results of the activity. Therefore, to be precise in the use of terms, it
would be better to describe companies' spending on CSR programs and activities as costs,
not expenses. Corporate spending in the field of CSR (with positive effects of that
spending) can be considered as replacing one asset with another, the first tangible and the
second intangible.

In cost accounting literature, a joint cost is a cost that contributes to the production of
more than one product, such as the cost of raw milk in the dairy industry and the cost of
crude oil in the oil refining industry (Daou, 1983). Also, the cost of producing a product
according to the system of stages of production can be considered a joint cost. It
represents the total value of added costs in each stage. The cost of products in industrial
firms is a joint cost, as it represents the total costs of primary activities and supporting
activities. The joint cost concept is not limited to products only, as it may refer to the
costs that contribute to the acquisition of more than one commodity, such as the cost of
transporting goods for more than one item on one truck, or the total value paid to
purchase more than one item in one transaction without specifying the value of each item
separately. Also, it may refer to the costs of any department or section that provides
services to more than one department within the organization, as is the case with the
purchasing and warehouse department, the payroll section, the maintenance department,
etc. In the field of cost accounting, many benefits can be achieved from distributing the
joint cost to the joint products, including the following: 1) Determining the cost of joint
products and enabling the company's management to take correct decisions regarding the
pricing of joint products. Joint products are products that are produced using a specific
raw material by the passage of that material through one or more production stages; 2) To
determine the cost of inventory related to joint products, etc. As for the thought of CSR,
the joint cost can be observed and inferred in the following cases: Overlapping CSRs; tax
incentives granted to donor companies; employees' involvement in corporate charitable
activities; the emergence of untargeted economic or social benefits; in the case of loaning
fixed assets and providing non-material assistance such as advisory services, construction
and maintenance works carried out by employees. The objective of joint cost allocation in
the field of CSR is to enable companies to disclose their commitment to CSR adequately
and transparently.
Corporate philanthropy is not limited to making material donations such as money,
goods, and fixed assets to charities, but rather goes beyond that. It may include non-
material assistance such as maintenance services, construction of buildings, installation of
machinery and equipment, provision of consultations, training of manpower, etc. that
companies provide to charities, civil society organizations, and non-profit public sector
institutions without waiting for any direct or indirect economic benefits other than
enhancing their reputation in the communities in which they operate. Non-material
assistance provided by companies to the aforementioned parties may be implemented
through employees working in those companies or by loaning some fixed assets for
specific periods and purposes. Therefore, the monthly or annual salaries of those
employees, as well as the annual depreciation installments for the loaned assets, may
reflect the concept of joint cost in the field of CSR. Part of the value of those salaries and
part of the value of those installments can be considered social costs due to their
contribution to enhancing the social performance of companies engaged in such
charitable activities. This type of cost is often hidden behind the economic cost. In other
words, it is integrated with it into one financial value.

Lights on the Problem

The field of accounting for CSR is quite recent compared to other fields of accounting.
The thought of accounting for CSR is still under development and improvement. The
field of accounting for CSR still suffers from some shortcomings in its theoretical
construction, which may hinder companies from practicing it properly. Among the most
important of those shortcomings and outstanding issues is the issue of joint costs in the
field of CSR. Although there is a clear meaning of the joint cost in many expenditures in
the field of CSR, especially in the field of corporate community involvement, but by
reviewing the thought of accounting for CSR, the following facts were revealed: 1) The
thought of accounting for CSR did not provide any initiative to define joint costs in the
field of CSR. 2) No scientific initiative has discussed the issues associated with the
disclosure of joint costs in the field of CSR. Also, there are no regulatory standards or
guidelines issued by any professional organization specialized in the field of financial
accounting standards that companies can adopt when disclosing their charitable activities
in the financial statements - in the presence of joint costs. As the disclosure of this type of
cost involves a lot of intellectual opinions and justified controversy.

Method
To raise a meaningful discussion about the meaning of joint cost in the field of CSR,
through which an accurate definition can be developed regarding it, this study adopted
the following concepts that can reflect the meaning of joint cost:
1) Overlapping CSRs
2) The real sacrifice (the issue of economic savings resulting from tax incentives)
3) Independent legal personality (separate property law)
4) Untargeted social or economic benefits
5) Mixed costs resulting from loaning fixed assets and providing non-material
assistance such as advisory services, construction and maintenance works, etc. by
employees.
Also, by adopting the possible behavior method and its supporting justifications, the
researcher will discuss all expected scenarios regarding the disclosure of these costs in
the financial statements.

This study falls under the umbrella of theoretical scientific research. One of the areas of
theoretical research is the development and improvement of innovative scientific theories
by discovering their shortcomings and addressing them with a logical and rational
approach. The purpose of these studies and research in this field is to develop scientific
knowledge.

The Importance of Studying

Earlier research studies indicate that the reporting of corporate charitable contributions
has received very limited attention in the academic literature (Campbell & Slack, 2008;
Griffin & Mahon, 1997; Peloza, 2009; Probohudono et al., 2020). There are only a few
research studies that have focused on the disclosure of the corporate philanthropy
(Probohudono et al., 2020). Research and studies in the field of disclosure of corporate
philanthropy are scarce and need to be given further attention (Md Hashim &
MdYusof,2016). Undoubtedly researchers' lack of interest in studying this field is
considered one of the most important reasons behind not discovering the concept of joint
cost in the field of corporate philanthropy and the issues associated with the process of
disclosing this type of cost, despite the existence of this cost as a reality in many financial
transactions related to charitable activities. Based on the foregoing, it can be said that
this study is considered an enrichment of the thought of accounting for CSR. The content
of this study may enable professional organizations specialized in the field of financial
accounting standards to issue guidelines regarding how to disclose corporate philanthropy
in the presence of joint costs. Also, this study may contribute to the knowledge
enrichment of legislative bodies specialized in the field of tax legislation. This study may
contribute to the development of corporate tax laws in many countries of the world. On a
practical level, the understanding of the meaning of joint cost in the field of CSR by
accountants will contribute to the development of the process of disclosing the social
performance of companies adequately and transparently, specifically in the field of
corporate community involvement.

LITERATURE REVIEW AND MEANINGFUL DISCUSSION

Overlapping corporate social responsibilities (CSRs)
According to Carroll (1991), CSRs are classified into four responsibilities: economic,
legal, ethical and philanthropic. There are those who classify CSRs into five
responsibilities: economic, legal, ethical, philanthropic and environmental. According to
Schwartz and Carroll (2003), CSRs are classified into three responsibilities: economic,
legal and ethical. The economic responsibility is the primary responsibility, while the
legal and ethical responsibilities are the responsibilities that support the economic
responsibility to achieve its goal, which is profit maximization. Legal responsibility is the
responsibility that represents the codified desires of society, while ethical responsibility
represents the non-codified desires of society. Regardless of corporate intentions, there
are certain obligations that have more than one dimension of CSR (the economic
dimension, the legal dimension, and the ethical dimension). Fulfilling one of the
requirements (obligations) of CSR may reflect the company's commitment to more than
one social responsibility. As a result, the fulfillment of a particular obligation can be
attributed to more than one social responsibility. Some of the requirements for fulfilling
CSR, depending on their nature, can be attributed to more than one social responsibility )
Carroll, 1979; Schwartz & Carroll, 2003). Most of the requirements to protect the
environment from pollution emanating from companies have been reinforced by laws that
must be adhered to by companies and institutions, especially in developed countries. As a
result, companies′ and institutions′ commitment to those laws is a commitment to their
legal and environmental responsibilities -this is what is known as the overlap among
social responsibilities. Given the importance of corporate environmental responsibility, it
appears as a completely separate responsibility from legal responsibility in the writings of
many authors in the field of CSR. For this reason, compliance with environmental
protection requirements may be seen by some as an overlap between environmental
responsibility and legal responsibility. As for the non-codified environmental protection
requirements, compliance with them by companies is a moral issue. Accordingly, some
may see that adherence to such requirements is an overlap between environmental
responsibility and ethical responsibility. Similarly, given the importance of corporate
philanthropic responsibility, it emerges as a separate responsibility from ethical
responsibility in the writings of many authors in the field of CSR. For this reason, making
donations to charitable organizations may be seen by some as an overlap between
philanthropic responsibility and ethical responsibility. The obligation to make donations
is primarily an ethical issue - reflects the company's voluntary commitment to the content
of the social contract theory, which may have positive indirect economic effects.
Examples of some obligations that reflect the overlapping situation: 1) Making
donations to charities. Corporate donations reflect the companies' commitment to their
ethical responsibility \ philanthropic responsibility and economic responsibility. These
donations can play a major role in enhancing the reputation of these companies. It is also
known that the good reputation of the company contributes to its survival and continuity
in the competitive market. Therefore, the value of the donation can be considered a joint
cost that reflects the company's commitment to its economic and ethical \ philanthropic
responsibilities .2) Relying on solar energy in lighting the company's offices and
operating electrical and electronic devices. It is also known that the cost of producing
electricity by means of solar energy is lower than the cost of producing electricity by
means of fossil fuels, and the adoption of solar energy in the production of electricity
contributes to protecting the environment from pollution. If there are laws that force
companies to use solar energy, then the obligation of companies to use solar energy to
generate electricity for their own purposes can be interpreted as an overlap between
economic responsibility and legal responsibility \ environmental responsibility (reliance
on alternative energy achieves significant economic savings and contributes to protecting
the environment from pollution). In the event that companies depend on solar energy to
generate electricity for use inside their buildings and they are not obliged (by law) to use
solar energy, in this case, there will be an overlap between economic responsibility and
ethical responsibility \ environmental responsibility. As a result, the cost of relying on
solar energy to produce electricity is a joint cost that reflects the company's commitment
to its economic and ethical responsibilities or its economic and legal responsibilities. 3)
Development of goods and services. Product development and product quality
improvement reflect the true meaning of the overlap between economic and ethical
responsibilities. The process of developing and improving the product reflects the
company's desire to maximize its profits (economic responsibility) and the community's
expectation to obtain goods and services that satisfy desires and achieve prosperity.
Developing and improving products contributes to strengthening the competitive
advantage of companies and maximizing their profits (economic responsibility),
improving the quality of life within society, and achieving prosperity (ethical
responsibility). 4) Environmentally friendly products. In developed societies,
environmentally friendly commodities have become more desirable than environmentally
unfriendly commodities. In those societies, environmentally friendly products contribute
to maximizing the profits of manufacturers, and those products also contribute to meeting
the desire of those societies that demand an end to environmental pollution in the
environments in which they live. Therefore, the commitment of manufacturers to adopt a
policy of environmentally friendly products reflects their commitment to their economic
and ethical responsibilities. The cost of developing a product to be environmentally
friendly is a joint cost, as it reflects the manufacturer's commitment to its economic and
ethical \ environmental responsibilities. 5) Producing safer and more useful children's
toys. One of the necessary policies that manufacturers of children's toys adopt in the field
of product quality is to produce the most useful and safe children's toys. Manufacturers of
children's toys realize that parents prefer to buy the most useful and safe toys for their
children. Manufacturers will always be keen to follow this policy to increase the volume
of their revenues and maximize their profits, and this behavior can reflect their
commitment to their economic responsibility, which mainly aims at maximizing profit.
Laws in most countries of the world prohibit the production of unsafe goods. Not
violating these laws means that the manufacturers are committed to their legal
responsibility. The production of safe goods is desirable for all societies. In the absence
of laws, the commitment of companies to achieve this desire is a moral commitment that
falls under the umbrella of ethical responsibility. Therefore, the cost of developing a
product to be safer and more useful can be considered a joint cost that reflects the
commitment of the manufacturers to their economic responsibility and their legal
responsibility together, or their economic responsibility and their ethical responsibility
together. 6) Compliance with consumer protection laws. Companies' commitment to
consumer protection laws is, in fact, their commitment to their economic and legal
responsibilities. Consumers will usually prefer to deal with companies that provide
products that are safe for their health. This preference contributes to the maximization of
corporate profit (economic responsibility). Laws cannot cover all aspects of consumer
protection, and therefore any actions or measures adopted by companies for consumer
protection will be classified as a moral obligation (ethical responsibility). 7) Supporting
environmental protection associations. The financial support provided by companies to
environmental protection associations - as non-profit organizations, can reflect the
commitment of those companies to their environmental and philanthropic responsibilities.
Those associations often invest corporate donations in developing and improving the
environment (ethical responsibility \ environmental responsibility). Also, without these
donations, these associations cannot achieve their visions and messages in society. These
donations are to support these associations, and therefore they fall under the umbrella of
charitable activities (ethical responsibility \ philanthropic responsibility). This is what is
known as the overlap among the requirements of one social responsibility.

One of the objectives of accounting for CSR is to identify and measure the social costs
incurred by companies to meet CSR requirements. The problem that companies may face
is the difficulty of distributing joint costs to the responsibilities affected by these costs
(overlapping responsibilities), especially if economic responsibility is one of those
responsibilities.

Untargeted Social or Economic Benefits

In the business world, firms may implement specific activities or follow special policies
to develop their economic performance or improve their social performance, but those
activities and policies produce untargeted social or economic benefits (social benefits for
the benefit of society or economic benefits for the benefit of firms). The costs incurred by
companies to implement such activities or adopt such policies are considered joint costs.
These costs improve not only economic performance but also social performance. For the
purposes of disclosing the social performance of companies, these costs can be
distributed according to certain criteria. Examples: Paving roads. The roads paved by the
firms to enable their cars, buses, and trucks to reach workplaces while allowing their
neighbors and passers-by to use those roads can reflect the concept of untargeted social
benefit. The cost of paving these roads can be considered a joint cost. This cost
contributes to supporting the economic performance of these institutions, as well as
achieving well-being and comfort for others who use these ways. Non-targeted social
benefits can be included under the umbrella of corporate community involvement,
especially those obvious social benefits that can be monitored and deduced with ease.
Annual depreciation installments for the cost of paving those roads are joint expenses.
These expenses must be distributed to determine the share of both economic performance
and social performance. The number of the organization's cars and the cars of the people
of the region can be used as a basis for distributing these expenses. Adoption of the
ATM system and credit cards by commercial banks. There is no doubt that the use of
advanced methods and tools such as automatic teller machines, credit cards, and
information and communication technology by commercial banks contributes to
enhancing the performance of these institutions. On an economic level, these tools and
methods are non-traditional sources of revenue generation for these banks. On the social
level, these tools and methods contribute to achieving the following social benefits: 1)
Reducing traffic congestion within cities and in areas where banks are located; 2)
Reducing money theft crimes within societies; 3) Achieving the welfare of customers
through fast, safe, inexpensive and convenient services, etc. Sometimes, costs that are
incurred to improve economic performance through the adoption of advanced methods to
attract customers may be considered as joint costs. The challenge with these costs lies in
determining how they should be allocated between economic and social performance.
Travel tickets at discounted prices for students and individuals with disabilities (the
sacrifice or social cost is the difference between the regular and reduced price).
Certain airlines have a policy to offer discounted tickets to students and individuals with
disabilities for a limited number of seats on each flight. The economic savings gained by
these categories of people can be included in the list of charitable initiatives of airlines.
Adopting these initiatives could lead to unintended economic benefits for airlines, such as
filling all seats on every flight (opportunity cost). Often, at undesirable times, there are
vacant seats on most flights. Unfilled seats on every flight are an economic loss for
airlines. So, this policy is economically beneficial for airlines. The difference between the
regular and reduced price is a joint cost. The challenge associated with this cost is how to
distribute it to economic and social performance.

When disclosing CSR, the problem of measuring the social benefits gained by society is
not the only challenge. Indeed, it can also be difficult to distinguish between social and
economic costs, particularly in cases where unintended social or economic benefits arise.

Corporate Philanthropy
Over the past two centuries, there has been a gradual increase in the interactions between
the for-profit and nonprofit sectors (Austin 2000; Googins and Rochlin 2000; Gray 1989;
Young 1999; Seitanidi & Ryan, 2007). Corporate philanthropy encompasses a wide range
of areas, such as healthcare, education, culture, arts, environment, humanitarian aid,
disaster relief, and improving people's quality of life (Modak et al., 2019; Rahmaa et
al.,2022). Concepts of corporate philanthropy/ corporate support/ corporate altruism
(Kotten 1997, Meenaghan, 1984; Seitanidi & Ryan, 2007) as forms of interaction
between the for-profit and non-profit sectors have been replaced by a broader concept
known as corporate community involvement (CCI) (Seitanidi & Ryan, 2007), also
referred to as community relations (Waddock, 2000; Seitanidi & Ryan, 2007( .Currently,
CCI is employed as an umbrella term within which corporate philanthropy (Kotten 1997);
sponsorship (Meenaghan 1983; Seitanidi & Ryan, 2007) and cause-related marketing
(Berglind & Nakata 2005; Seitanidi & Ryan, 2007) are positioned. According to Porter
and Kramer (2002), corporate philanthropy is an essential element of CSR. Corporate
philanthropy refers to voluntary acts of altruism that do not require any compulsory
repayment (Ke et al.,2015a; Ke et al.,2015b). Corporate philanthropy can help improve
the quality of the business environment by combining social and economic goals, which
can lead to better business opportunities in the future ( Porter and Kramer , 2002).
Corporate philanthropy is a part of the broader field of CSR. It involves showing a level
of generosity and selflessness (Gan, 2006). Philanthropy is a Greek word meaning "love
of people". It refers to ‘goodwill to fellowmen; especially: active effort to promote
human welfare (Merriam Webster Online Dictionary, 2008). Philanthropy refers to
charitable acts or other good works that help others or society as a whole. Philanthropy
can include donating money to a worthy cause or volunteering time, effort, or other forms
of altruism.
Corporate philanthropy intended in this study is material and non-material assistance that
companies provide on a voluntary basis to those who need such assistance- outside the
walls and buildings of those companies, with the aim of supporting them to overcome
their ordeals, to enhance their abilities or to improve quality of their life and achieve
prosperity for them without waiting for any direct or indirect economic benefits except
for enhancing their reputation in the environment in which they work. Donations made by
a company become a strategic issue since the company promotes itself as a socially
responsible enterprise (Gardberg et al., 2019; Rahma et al.,2022 ). The aim of corporate
philanthropy practice is to increase the value of the company by the achievement
potential strategic effects (Gao et al., 2012; Probohudono et al., 2020). Corporate
philanthropy also has an economic impact, which is reflected in the company's financial
performance (Pan et al., 2018; Rahma et al.,2022).

The real sacrifice (the economic savings resulting from tax incentives)
Many countries provide tax incentives to corporate donors to encourage them to maintain
their charitable activities within the communities in which they operate. (Asatryan &
Joulfaian, 2022 ). The most common incentive is to permit the deduction of the value of
the donation, or a portion of it, from the company's taxable income. This incentive
contributes to reducing the amount of tax paid to the IRS (reducing government revenue
from taxes) and generating tax savings for businesses. Tax saving is calculated as
follows: (The amount of income tax paid to the IRS, assuming that donations are not
deducted from taxable income) – (The amount of income tax paid to the IRS, assuming
that donations are deducted from taxable income). Tax saving obtained from donations
refers to the reduction in the amount of income tax paid to the IRS due to the deduction
of the value of contributions from the value of taxable income. Also, tax saving refers to
the difference between the income tax value when donations are made and when they are
not made. The real sacrifice is the difference between the value of the donation and the
value of the tax saving ( Saleh ,2018; 2020). Based on the above, it is reasonable to
conclude that government is an indirect collaborator with corporate donors, and that
donations to nonprofit or charitable organizations are joint expenses paid by corporate
donors and the government. To be more specific, the charitable organization receives a
donation that is a joint cost paid by the donor company and the government. The donation
value received by the charity is a joint sacrifice incurred by the donor company directly
and the government indirectly. In order to maintain transparency in corporate financial
statements when disclosing donations, it is crucial to provide the precise value of the
donation and any associated tax benefits.

Independent Legal Personality (Separate Property Law)

Employee giving programs (corporate philanthropy programs) are an opportunity for
firms to engage their people in small acts of kindness that contribute to major change and
impact. A workplace giving program can include making tax-deductible donations to
nonprofits and providing funding for volunteer grants (https://benevity.com). ʺWorkplace
giving (employee giving) is part of CSR that fosters a culture of giving in employees by
motivating them to make donations to charities and non-profit organizations for a worthy
causeʺ (Heist et al., 2023). The concept of joint cost arises when both employees and
their organization contribute to financing a specific charitable activity. At times,
employees might get the chance to take part in charitable initiatives undertaken by their
organization in different areas, including: 1) Supporting charities; 2) Advocating for
specific social issues; 3) Implementation of special development programs for the benefit
of the community in which they work and live; 4) Alleviating the suffering of people in
the event of natural disasters and wars. Examples: 1) A certain region in a country
received a generous donation of $1,000,000 from a company to assist families who have
been impacted by floods. Half of the value was contributions made by the employees of
that company. According to Independent Legal Personality, the value of the donation is a
joint cost. 2) When private hospitals issue a bill for patient treatment, it includes charges
for both the doctor's services and the hospital's facilities (the bill includes the doctor's
rights and the hospital's rights). In certain circumstances, the surgeon and the hospital
may choose to waive or reduce their fees for patients who are experiencing financial
hardship. In this situation, the financial aid is regarded as a joint cost or a joint sacrifice.
The joint donations' worth is a joint cost borne by both employees and the organizations
they belong to. For the purpose of disclosing joint donations in a transparent manner, the
employees’ contribution must be separated from the contribution of the institution in
which they work. Despite the strong relationship between workers and their institutions,
each of them has an independent legal personality.

Mixed costs
Loaning specialists, equipment and fixed assets to charitable and not-for-profit
organizations for a set period of time, is another form of charitable assistance offered by
businesses. Therefore, in such cases, cash and non-cash expenditures incurred by
companies reflect the concept of joint cost. The joint cost in this field can be monitored in
the salaries of workers, depreciation of fixed assets, and some other expenses, such as
printing and photocopying expenses. Examples: 1) The loan of fixed assets and the
operators of those assets. Depreciation installments for loaned assets are joint costs.
That means that part of these costs has been exploited for the benefit of economic
performance and the other part for the benefit of social performance. The same applies to
the salaries of the operators of those assets. 2) Providing non-material assistance such
as advisory services, construction and maintenance works, etc. Through their
employees, companies can provide non-monetary assistance to charities and non-profit
organizations to enable them to perform their duties and achieve their goals within the
community in which they operate. This assistance can include carrying out construction
and maintenance work, providing consultancy, training, and so on. The monthly or
annual salaries of the employees who carried out these charitable activities can reflect the
concept of joint cost. 3) Free printing, photocopying and binding services for
dissertations of postgraduate students in the country. In recognition of the economic
circumstances of some postgraduate students, companies may provide special support
and assistance to this category of students. This assistance includes providing free
services to students in the field of printing and photocopying of research papers and
theses. As a result, the values of the annual expenses of printing paper, inks, salaries of
computer typists and photocopier operators, and depreciation installments of those
machines are joint costs. Not all annual expenses in this field are for the purpose of
serving charitable activity, but there is a large part of them that is exploited for the benefit
of the company's economic activities.

Based on the foregoing, joint cost can be defined as follows: Joint cost is the cost that
reflects the company's commitment to more than one social responsibility, or that
produces unintended economic or social benefits, or that a part of it is borne by
another party, or that reflects the amalgamation of economic cost with social cost in
one financial value (it is the financial value, part of which is attributed to economic
performance and the other to social performance. It is the cost, part of which
represents the value of the assistance provided to others).

Disclosure of Corporate Philanthropy

A disclosure is additional information attached to an entity's financial statements, usually
as an explanation of activities which have significantly influenced the entity's financial
results. Accounting disclosure is the process of showing financial information, whether
quantitative or descriptive, in the financial statements, margins, notes, and supplementary
tables in a timely manner, which makes the financial statements not misleading and
appropriate for users of the financial statements, especially external parties, which do not
have the authority to view the books and records of the institution. Accounting disclosure
of social performance is the method by which the organization can inform all those
people outside its walls and buildings about its various activities with social implications
through financial statements or attached reports as an effective tool for communicating
with them.

Disclosure of corporate charitable activities must include the following information on:
1) The beneficiaries, such as their names, nature of their activities and addresses, how to
contact them and a description of the benefits that the charity can gain from the charitable
activity; 2) The nature of the donation, whether it is material or immaterial; 3) The
purpose of the donation ,whether it is for humanitarian assistance or for the achievement
of welfare; 4) The flow of benefits, whether it is continuous for a specific period or
temporary; 5) In the case of donating money. The paid values and check numbers must be
specified; 6) In the case of donating fixed assets. The name of the asset, the condition of
the asset, the cost of acquiring the asset, the date of acquisition of the asset, the book
value of the asset, the market value of the fixed asset and the annual depreciation
installment must be specified; 7) In the case of donating goods. The type of goods, the
quantity of the donated goods, the donation date, the production date, and the expiration
date must be specified; 8) In the case of donating services. The type and nature of the
services provided, the cost of the services performed, the number of hours spent to
complete the service, the names of the employees who performed the service provided to
the beneficiary, their jobs, and the values of their monthly salaries must be determined.

The researcher defines the disclosure of CSR, including corporate community

involvement, as follows: It is a quantitative and descriptive statement that is prepared
in an adequate and transparent manner by a company to enable users of its financial
statements (stakeholders) to make the necessary assessments to judge the quality of that
company's commitment to the CSR requirements and form a positive or negative image
in their minds about its performance.

Disclosure of corporate philanthropy in the financial statements may be misleading when

it is used to beautify the company's image and enhance its reputation through intentional
or unintended exaggeration in the value of cash and in-kind donations. This exaggeration
can occur in the following three cases: 1) Ignoring the real sacrifice that companies incur
(deduction of the value of the tax savings from the value of donations); 2) Ignoring the
concept of an independent legal personality (merging the donations of employees with
the donations of the company- in which they work, in one value without specifying the
employees' contribution); 3) Ignoring the market value in the case of donating fixed
assets and goods. Also, disclosure may be incomplete when ignoring the small donations
that produce great benefits for the beneficiaries.

Many firms choose not to disclose the amounts and recipients of their generosity to avoid
conflicts with key stakeholders (Morris & Bartkus, 2015). This act may reduce the
chances of enhancing their reputation in the environment in which they work. Also, there
is another reason why companies do not disclose their charitable donations, which is the
prevailing political, economic, social and cultural conditions in society may discourage
companies from disclosing charitable activities. In Libya, the financial statements
prepared by companies are for the purpose of paying income tax and renewing annual
licenses. Consumer loyalty depends primarily on the price and quality of goods or
services.

Possible Scenarios Regarding the Disclosure of Joint Costs in the Financial

Statements
Possible scenarios regarding the disclosure of joint costs- in the field of CSR, in reports
and financial statements can be identified as follows:

Disclosure of the overlapping CSRs and the untargeted social or economic benefits

When disclosing social performance in the financial statements of companies, the

accounting measurement of the social benefits that society reaps - as a result of
companies' commitment to their social responsibilities, is not the only problem that
companies will face, but there is another problem related to measuring the social costs
incurred by companies, which is the problem of joint cost. Accountants will be incapable
of separating social costs from economic costs in the following two cases: 1) Overlapping
economic responsibility with other social responsibilities; 2) Untargeted economic or
social benefits.

One of the requirements of accounting for CSR is the identification and measurement of
corporate social costs. The problem in this regard is the difficulty of distributing joint
costs to the responsibilities affected by those costs (overlapping responsibilities),
especially if the economic responsibility is one of those responsibilities, as in the case of
environmentally friendly products that have become popular in developed countries. In
those countries, consumers prefer these commodities over other similar undeveloped
commodities that do not contribute to environmental protection. This preference
undoubtedly contributes to maximizing the profits of producing companies. In addition to
the problem of joint cost distribution; there is the problem of intentions. Often the
intentions of the companies involved in producing such kind of goods are not clear. In a
more precise sense, is the production of these commodities for the purpose of profit or for
the purpose of contributing to environmental protection? Based on the explicit and
transparent answer, the costs of developing the product to be environmentally friendly
can be classified as an economic cost or a social cost in the financial statements.
Logically, this measure is unfair. Regardless of the companies' intentions, if the economic
costs (those that contribute to maximizing profit) are not separated from the social costs
(those that contribute to protecting the environment), this will undoubtedly affect the
results of measuring social costs. If the cost of developing a product - to be
environmentally friendly, is classified by a company as a social cost, this classification
will contribute to inflating the value of the social cost in the field of environmental
protection in the social performance reports of that company. In fact, this cost is to
enhance economic performance and social performance together. Classifying this cost as
a social cost, rather than a joint cost, contradicts the principle of transparency in
disclosure. Non-disclosure of some social costs in social performance reports due to the
difficulty of separating the social costs from the economic costs leads to a decrease in the
value of social costs- incurred by companies, in those reports. One of the challenges
facing companies is how to separate social costs from economic costs in the event of
overlapping responsibilities and benefits that are not targeted. The expected procedure is
that companies may adopt a descriptive method of disclosure of the joint cost in such
cases. One possible expectation is that companies will disclose the costs of developing
the product - to be environmentally friendly, as social costs, without referring to the
economic gains achieved by those costs in an attempt to inflate the social costs under the
pretext that the reason for their involvement in this activity is their desire to protect the
environment by producing environmentally friendly goods, while their real goal is
economic gain. Also, there is another problem related to the distribution of joint costs,
which is what are the criteria that companies must adopt to distribute these costs in such
cases? Given the difficulty of distributing the joint costs associated with the issue of
overlapping responsibilities and non-targeted benefits referred to above, the researcher
advises the need to adopt descriptive disclosure. Descriptive disclosure can be sufficient.

Regarding the disclosure of the real sacrifice

The real sacrifice is deducting the value of the tax saving from the value of the donation
made to charities. There are two scenarios regarding the disclosure of the real sacrifice:
The first scenario is to ignore the disclosure of the real sacrifice incurred by the company
with the aim of inflating the numbers in the financial statements to maximize the amount
of sacrifice in an attempt to deceive the readers of those statements and enhance its
reputation through the inflated values. The second scenario is not to ignore the disclosure
of the real sacrifice. To enhance confidence in the numbers included in the financial
statements, companies disclose their real sacrifices in the field of charitable work.
Companies believe that transparent disclosure in the financial statements is an effective
tool to enhance confidence and gain a good reputation in the environments in which they
operate.

Regarding the disclosure of the employees′ contribution

Employees, through their own money or their financial rights in the companies in which
they work, can contribute to the financing part of the value of donations made by their
companies to non-profit organizations or to support the needy in certain situations such as
wars and natural disasters. In this case, the value of the donation will reflect the concept
of joint cost. There will be two scenarios for disclosing the joint cost: 1) Referring to the
donations in the financial statements as the total value of two donors, namely the
company and its employees, without specifying the employees’ contribution. Disclosure
in this manner creates a state of ambiguity about each party's contribution to the
financing of charitable activities. When the value of the employees' contribution is higher
than that of the company they work for, the company may use this way to avoid criticism
and embarrassment. Disclosure in this way may be interpreted by others as a process of
exploiting workers to polish the company's image; 2) Referring to the donations in the
financial statements as the total value of two donors, namely the company and its
employees, with specifying the employees’ contribution. Disclosure in this way is
consistent with the principle of adequate and transparent disclosure. This way enhances
the confidence of others in the data and information that the company publishes in its
reports and financial statements.

Regarding the disclosure of mixed costs

Mixed costs arising from loaning fixed assets and providing non-material assistance such
as advisory services, construction and maintenance work by employees include two types
of costs, namely, the economic cost and the social cost. When separating the two costs
from each other, the value of the social cost is often small compared to the value of the
economic cost. Despite the great benefits that charities and non-profit organizations can
reap from small donations made by companies, it is expected that these donations will not
be disclosed in the financial statements of donor companies, especially large ones. One of
the grave mistakes that companies may make when disclosing their charitable activities is
to focus only on the value of the donation without taking into account the amount of
benefit it achieves for the beneficiaries.

Proposed Principles for Disclosure of Corporate Philanthropy

Accounting disclosure is the process of showing financial information, whether

quantitative or descriptive, in the financial statements, margins, notes, and supplementary
tables in a timely manner, which makes the financial statements not misleading and
appropriate for users of the financial statements from external parties, who do not have
the authority to view the books and records of the institution. In order to avoid misleading
and ambiguity in the financial statements, professional organizations in the field of
accounting and auditing, such as the International Accounting Standards Committee,
issued a package of general standards in the field of accounting disclosure. However,
these standards may not be sufficient to achieve adequate and transparent disclosure of
corporate philanthropy, especially in light of the existence of joint costs in the field of
corporate philanthropy. To ensure the quality of disclosure of corporate philanthropy (to
avoid misleading and ambiguity), the researcher suggests that companies should adopt
three guiding principles when disclosing their charitable activities. These guidelines are:

1) The Principle of Real Sacrifice

To encourage companies to engage in charitable activities, tax laws in many countries of
the world permit the granting of tax incentives (tax exemptions) to donor companies. This
means that the value of donations made to charities do not reflect the real sacrifice
incurred by these companies. To prevent misleading the readers of the financial
statements, donations must appear as net values in those statements (the value of the
donation - the value of the tax saving). Also, transparent disclosure may be made in the
financial statements by showing the total value of the donations, with reference to the
value of the tax savings achieved by these donations.

2) The Principle of Ignoring the Relative Importance of Financial Values

For evaluation purposes, it will be important to consider the quality of the benefits
gained and not just the value of the donations made. In practice, it is expected that
companies, especially large ones, do not disclose their small donations in the financial
statements, despite the great benefits that those donations bring to the beneficiaries. The
researcher believes that it is necessary to ignore the principle of relative importance of
financial values when disclosing charitable activities and initiatives in the financial
statements of companies. The quality of the charitable activity lies in the amount of the
intangible value of the benefit achieved for the beneficiaries, and not in the amount of the
financial value paid to accomplish that activity. The lesson is the amount of the intangible
value of the benefit, not the amount of the financial value of the assistance provided to
the beneficiaries. What counts is the intangible value of the benefit gained, not the
financial value of the donation. Illustrative examples: 1) Exemption from paying
publication fees. One of the electronic scientific journals in USA published a
distinguished scientific study (free of charge without publishing fees) for a doctoral
student coming from Africa who is studying on a grant from a university in Washington
State. The publishing fee is $50 to cover the costs of publishing the paper on the journal's
website. By tracking the interaction of readers with the published paper, it was noted that
the paper was downloaded more than 12,000 times. The value of the assistance provided
by the journal is $50, and the benefit achieved by this assistance is scientific enrichment
(scientific knowledge) for more than 12,000 people. Without the simple financial
assistance provided by the journal to that student, this benefit would not have been
achieved; 2) Maintenance of toilets for the elderly home. Assuming that, in March
2020, one of the contracting companies assigned one of its technicians to maintain the
water lines for the toilets of one of the homes for the elderly, inhabited by 400 people.
The technician completed the work in that institution over two consecutive working days.
The monthly salary for that technician in that period was $900. That technician's salary in
March 2020 reflects the concept of joint cost, as it includes a social cost of $60. The free
service provided by the company to that institution at a cost not exceeding $ 60 enabled
400 inmates to dispose of their organic waste (urine and feces) in a humane, clean and
healthy manner for a period of time. In such cases, the benefit gained by the beneficiaries
of the donation is much higher than the value of the donation; 3) Transporting students
of a public school to visit a historical site outside the city's geographic boundaries.
On one of the weekend days, a company loaned two buses with their drivers to a public
school in the city, where the company operates, to transport 300 students to visit a
historical site outside the city's geographic boundaries. The monthly salary for each
driver is $1,500. The annual depreciation installments for the two buses are $5,475. The
value of the assistance provided by the company is (5475 ÷ 365 + 3000 ÷ 30) $115. This
simple value is considered nothing if compared to the amount of scientific benefit
(knowledge enrichment) that students gained during that visit; 4) Maintenance of
computer software and hardware for the Civil Status Authority. Assuming that, a
company specialized in the field of computer maintenance assigned an engineer- in the
city of Benghazi, to maintain computer hardware and software for the Civil Status
Authority in the Al-Baraka area. The engineer completed the maintenance work in that
institution within one day. The monthly salary of the engineer is $1200. The value of the
assistance provided by the company is (1200 ÷ 30) $40. This small cost enabled the Civil
Status Authority to issue 120,000 birth certificates and 50,000 family status certificates
for citizens in the city of Benghazi. This simple value is nothing compared to the amount
of benefit achieved by the citizens of the city.

From the previous hypothetical examples, the following facts can be drawn: 1) The
social costs incurred by companies in such charitable activities are not clear to those
outside the walls and buildings of those companies, so disclosing these costs is the only
path; 2) The social costs incurred by companies in such charitable activities are integrated
with the economic costs and hide behind them. This merger will be in line with the
company's desire regarding disclosure or non-disclosure of those costs; 3) When
separating the costs, it can be noted that the social costs incurred by companies in such
charitable activities are small compared to the economic costs, but they contribute to
achieving great benefits for the beneficiaries.

Principle of Materiality
In accounting literature, materiality refers to the impact of an omission or misstatement of
information in a firm's financial statements on the user of those statements. The concept
of materiality refers to the impact a specific financial figure has on a company's accounts,
and whether its omission or a mistake in its calculation has a material impact on the result
of the financial statements. Materiality in accounting refers to the relative size of an
amount, and the impact it makes on the financial statements. In the accounting process,
accountants deem relatively huge sums of money to be material. This means they have a
significant impact on the company's finances. Accountants tend to deem relatively small
sums as unimportant. This means they don't have an important impact on the company's
finances. Accountants typically use their professional judgment in defining whether a
sum is material or not. If it is probable that users of the financial statements would have
altered their actions if the information had not been omitted or misstated, then the item is
considered to be material. If users would not have altered their actions, then the omission
or misstatement is said to be immaterial. Disclosure or non-disclosure of certain items in
the financial statements will depend on the importance of those items for the users of
those statements, whether in the field of decision-making or performance evaluation. The
researcher believes that one of the criteria for evaluating the quality of corporate
philanthropy (charitable activities) is the quality of benefits produced by charitable
activities for the beneficiaries. Criteria for evaluating the quality of the benefit can
include the nature of the benefit, its positive effects, the duration of its continuation
(the duration of the benefit flow), and the number of beneficiaries, etc. Evaluating the
quality of charitable activities depends not only on the amount of donations made, but
also on the benefits that these donations produce. Also, the satisfactory benefits that
can be produced by charitable activities do not depend only on the large sums donated;
even small amounts can produce a satisfactory amount of benefits. Evaluation of the
quality of charitable activities should not only be based on the amount of money
incurred by companies to carry out those activities, but should also include the amount
of positive impact of the benefits produced by those activities on the well-being and
quality of life of the beneficiaries.

Often intangible things like love, happiness, inner harmony, joy, good health, creativity
and ideas, and peace have much, much more value than tangible ones. These things
can be achieved with small sacrifices. Small donations can create large benefits for a
wide range of beneficiaries.

Accounting disclosure of the numbers included in the financial statements depends on the
degree of importance of those numbers and the extent of their impact on: 1) The
decisions of the users of those statements; 2) The image of the company in the minds of
those users. The importance of including and disclosing charitable donations in the
financial statements should not only depend on the value of the donation made, but also
on the amount of benefit that the donation brings to the beneficiary. Disclosure of
charitable activities should include small donations that bring great benefits to
beneficiaries. As if to say that, the company incurred $60 for the maintenance of the old
people's home toilets to enable 400 inmates to dispose of their organic waste in a
humane, clean and healthy manner.

3) The Principle of Independent Legal Personality of Donors (Separate Property

Law)
According to this principle, employees' donations must be separated from the donations
of companies in which they work when disclosing donations in the financial statements in
conformity with the principle of independent legal personality. In the world of business, it
may happen that corporate employees donate part of their salaries or their own money,
which may be added to corporate donations (this is called joint donations), to support a
social cause or to alleviate the suffering of those affected by natural disasters and wars.
One of the expected mistakes is companies' disclosure of their joint donations as total
values without indicating the value of the employees' contribution, and this contradicts
the principle of transparency in presenting information.

Conclusion
This study was able to define the term ″joint cost″ in the field of CSR, after identifying
the activities whose expenses can reflect the meaning of this term. Also, this study was
able to develop three basic principles that must be adopted by companies to enable them
to disclose their charitable activities in an adequate and transparent manner.

This study is considered an enrichment of the thought of accounting for CSR. This study
will enhance the capabilities of companies in the field of disclosure of their commitment
to CSR, especially in the field of charitable activities in an adequate and transparent
manner. Also, this study may contribute to the knowledge enrichment of legislative
bodies specialized in the field of tax legislation. This study may be a reason for
developing corporate tax laws, specifically in the following two issues: 1) Tax treatment
of non-targeted economic and social benefits; 2) Tax treatment of small donations that
produce large benefits for beneficiaries. This study is considered an invitation to
international accounting organizations to issue their recommendations regarding how to
disclose in the financial statements about charitable activities, especially those that reflect
the concept of joint cost or whose costs are small but produce great benefits.

A justified recommendation
Through the hypothetical examples presented in this study, it can be said that, the returns
of corporate philanthropy do not depend only on the magnitude of giving; even small
contributions can achieve a satisfactory return. Therefore, the benefits gained by the
beneficiaries can be used as a criterion for evaluating the quality of corporate
philanthropy regardless of the amount of the donation.

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