Using verbal protocol analysis, this study examines how 21 experienced auditors from four different firms assess the seven key inputs in a discounted cash flow (DCF) model used by management to value goodwill. The analysis compares the auditors' processes against a theoretical model derived from an analysis of accounting and auditing standards and authoritative sources of valuation methodology and identifies systematic omissions and inaccurate applications of key audit steps. It also relates those issues to audit outcomes at the individual input and the overall goodwill evaluation levels. The study's findings can help regulators, standard setters, practitioners and academics to better understand the limitations of auditors' competencies so that they can design strategies for mitigating them.

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