Recently, adaptive subband coders based on wavelet packet decomposition and psychoacoustic modelling have been proposed to achieve transparent quality compression of audio signals. While these coders perform well for stationary signals, there is no special mechanism in the coder to prevent the pre-echo artifact when transient signals are encoded. In this paper, we propose a switched DPCM/Subband structure to remove the pre-echo problem. This is achieved through a novel temporally varying bit allocation scheme which is based on the temporal masking properties of the human auditory system. The proposed coder/decoder output is found to be free from pre-echo artifact even at a lower bitrate than the adaptive subband coder.