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Several items of importance came to your attention during an audit of a continuing client with a year end of December 31, 2019

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Several items of importance came to your attention during an audit of a continuing client with a year end of December 31, 2019. These items are noted as follows:

• January 1, 2019 the company changed from FIFO to average cost; inventory is material, but the company has been using average cost for the entire year under audit
• Beginning in September 2019, the company began falling behind on payments to vendors; they explained that they are “extending” payment periods to their vendors in order to make their loan payments; management assured you that the vendors are long-time friends and do not mind
• On February 24, 2020, one of your client’s major customers declared bankruptcy; they had an outstanding accounts receivable balance at the end of the year of $146,000, which was confirmed by the customer as of December 31, 2019
• In your communication with the client’s attorney, the attorney indicated there are a few frivolous lawsuits; there is one lawsuit where your client is suing a supplier for $60,000 and the attorney indicated your client will probably win; there are two other lawsuits against your client – it is probable they will lose both; the attorney cannot provide a reasonable estimate of the loss for the first lawsuit, but the second lawsuit will probably result in a loss ranging between $100,000 to $250,000
• The audit report was released to the client March 3, 2020
• On March 24, 2020, the first lawsuit was settled for $85,000

1. How should you have addressed each of the items above during the audit?
2. Given the considerations listed in your answer to 1 what, if any, adjustments should you have made to the financial statements and notes?
3. What type of audit opinion would you have issued? Why?
4. How would you have handled the subsequent discovery of facts related to the audit year?