A system and method to process audio data received over the ARC or eARC interface of HDMI from audio sources are provided. A media device may receive compressed audio data in a number of data formats. The media device may convert between the audio formats provided by the audio sources and the audio formats supported by audio playback devices. The media device may inspect frames of audio data to determine if the frames are to be decoded. The frame may be decoded and subsequently encoded into the data formats supported by the audio playback devices. To reduce latency, the media device may enable a pass-through mode to bypass the decoding of the frames to allow the frames to be decoded at the audio playback devices. A bi-directional loopback application may route audio data received over the ARC or eARC interface from the audio sources to the audio playback devices.