I understand that typically to get best quality, you’d have your endpoint connected via USB to a USB DAC, and then that would connect to your AVR with analogue outputs (eg. balanced XLR). This avoids potential clock issues with using S/PDIF output from your endpoint in to the AVR. The AVR might also not have a very good DAC.
But what happens if you are using the AVR’s room correction? For example, Denon’s Audyssey. Does that room correction happen in the digital or analogue domain? If digital, does it mean that analogue inputs are converted to digital, corrected, then back to analogue with the AVR’s DAC? In which case, would it be better to use the S/PDIF connection and avoid an AD step?
(I’m assuming an AVR that doesn’t have USB input for digital audio.)