During the wrapping up stage of the 20X2 audit of your client, BuffCo, you discovered the following independent situations:

1. A major customer declares bankruptcy causing a material receivable to be uncollectible.
2. During year 2, a former customer sued BuffCo for inappropriate work. The information provided in the lawyers letter from BuffCos attorney indicates that it is reasonably possible that BuffCo will be assessed damages. An amount can be estimated.

Required: Discuss the impact each situation would have (if any) on the 20X2 financial statements you are currently auditing.