Here's the short version of the remodel. I decided to replace my toilet. After removing the old toilet I noticed that the surrounding tiles were popping up and the sub floor was rotten. This made us decide to take on a full renovation. Now the bathroon is completely stripped to studs and only 1x12's covering the floor joists.

Here is where I need help!

All of the interior and exterior walls were made of 2x3's. The walls had two layers of drywall on them. The first layer consisted of 12" wide sheets that were layed horizontally. They then had a layer of mud over them. The outside layer seemed to be regular drywall over the whole thing.
My problem is that these two layers of drywall seemed to make the walls think enought to match up with the trim, doors and window. Can I get away with regular Hardy Board and drywall, or will I have to extend the studs with a strip piece all around?

I also don't know if the 2x3 walls give me enought depth for insulation that is up to code.

Any advice, please! Thanks, J