The embedded audio coder (EAC) is a fully scalable psychoacoustic audio coder which uses a novel perceptual audio coding approach termed "implicit auditory masking" which is intermixed with a scalable entropy coding process. When encoding and decoding an audio file using the EAC, auditory masking thresholds are not sent to a decoder. Instead, the masking thresholds are automatically derived from already coded coefficients. Furthermore, in one embodiment, rather than quantizing the audio coefficients according to the auditory masking thresholds, the masking thresholds are used to control the order that the coefficients are encoded. In particular, in this embodiment, during the scalable coding, larger audio coefficients are encoded first, as the larger components are the coefficients that contribute most to the audio energy level and lead to a higher auditory masking threshold.