Independence in small audit firm?

The following is an account of my experience in a small audit firm, auditing one company, how it deviates from what I learned in class. I will not be disclosing the firm's name or the company name, neither will I be disclosing the names of the people involved.

It was my first audit experience. The company was a one director cum shareholder private limited. When auditing, my boss wasn't always around though he said he will guide me.

On the first day in the client's company, he was talking to the staff and director like friends (advocacy threat), while I was doing the work based on his instructions. He did entered into the room and continue guiding me after quite some time. Then i have not learn about threats to independence in my class yet, but the way he presented himself seemed like a PR manager to me. The company also bought lunch for both of us since it was situated in an industrial area (food is not near) and they didn't accept payments from my boss (considered as gifts?). If the lunch was considered as gifts, the time in accepting them did not seem right, that is during the audit.

The rest of the working days I couldn't exactly tell which days what things happened, but here are some things which I observed. While my boss is away to do some other work, I was left in the client's company and having to ask for documents from the accountant (heard from my boss she wasn't qualified) who seemed to be quite familiar with the contents of the current audit file. Doesn't that make her easier to cheat? The boss left the working papers in her office such that need not bring the heavy documents to and fro. I also overheard the director saying stuff to my boss like "Hey, another audit firm quoted me a cheaper price. Maybe I should change?" (intimidation threat). The company was also lending money to another company (opened by the same director) which was not earning any revenue as heard from the accountant that the company seemed to be in a dormant state (for two years?). I thought was against the company interest and furthermore was debited as expenses. My boss then suggested shifting that to the drawings account. Towards the end of the audit, the accountant don't really want to answer me and said to my boss "Your assistant is very 'ti-ti' in a sense 'follow law by law'" and I was like thinking in my mind that "Yeah my boss very lenient, do whatever you like."

My boss asked me "Why does everybody think he has a lot of money?" He remarked that he is not very well-off kind. I guessed maybe, especially lowering the dignity to some extent to earn money. From what I heard from my colleague, the director was very rich, opening a series of companies and all or maybe, most of them are audited by our company. As such, the proportion in terms of earnings should be very large until the audit firm is dependent on the jobs by that one director. The audit firm also undertakes non-audit jobs as well, hence could have "self-review" threat present as well. Well then, how can a small audit firm ever have some independence? Can it even expand itself?