The GRACE satellites deliver high quality GPS code and phase, inter-satellite range and range-rate, non-gravitational acceleration, and star camera observations that can be used to estimate the static and time variable gravity field of the Earth with unprecedented accuracy. Nevertheless, the baseline accuracy that was determined in a pre-launch simulation study could not yet be reached. To find out possible reasons and to give recommendations for an improved data processing, another simulation study using the software, standards and processing strategy actually applied at GFZ in the routine processing of GRACE data is performed. The results point to inaccuracies in present ocean tide models. Additionally, it was found that the accelerometer noise cannot be absorbed sufficiently by the instrument parameters estimated so far and a shortening of the arcs seems to be necessary. Finally, an observed bias in the C20-coefficient of the GRACE gravity field models could be related to a GPS antenna phase centre bias in along-track direction.