Beryl I think some parents would feel frustrated at the implication that they can't determine for themselves the correct level, as if most parents are so driven by competition that they would happily have their child struggling and frustrated either with decoding or not following the nuances of the plot.
Many parents, especially those taking an active interest in teaching their children to read, are more than capable of realising when a text is a good fit for their child.
Some schools, at least anecdotally from MN posts, have bizarre rules, from insisting that a child reads every book in each stage to the example above where writing is used to determine the reading level.
I am grateful that in reception DDs school listened & responded to me when I thought she was ready to move up a band. They always assessed, using PM benchmark & always moved her up at least 1 band.
Now, in yr 1 & 5 & 3/4 she's on copper/brown (the level above lime) & not only loves the scheme books (she always has) but reads for pleasure too.
As for comprehension skills well surely learning new things you don't already know about is one of the benefits of reading? For example currently reading Spider McDrew which uses the phrase "you're a hopeless case". No she didn't know what the phrase meant - I would never say it to her, so why would she. She knows what it means now because I explained it to her.
Despite not knowing everything (you know, being 5 and er a human that will hopefully be learning new things all her life), I (& her teacher) know her comprehension skills are more than ample to read at this level.
In The Wonderful Wizzard of Oz (her current bedtime story that we read to her) there is a line:
"All the same" said the Scarecrow, "she needs a heart as much as the Tin Woodman."
The Scarecrow is referring to Oz, who had appeared to him as a "most lovely lady", "beautiful creature" that "looked upon him [the Scarecrow] sweetly." I asked DD why the Scarecrow thought the lady needed a heart as much as the Tin Woodman. She replied "the lady wasn't kind" ... "because she wants the Scarecrow to kill the Wicked Witch of the West." Which I think most would agree is a lovely bit of inference on her part.
If schools have rules that inhibit appropriate differentiation, or if the default view is that parental information about their DCs capabilities can't be trusted then this is, in my view, a disservice to children.
Thankfully I think the majority of schools & parents get the balance right most of the time. But what is the justification for the schools engaging in this limiting behaviour?