I would look at the test and see that he answered every question correctly, but was given a D for developing on several skills. When I asked, I was told because that is what 1st graders are supposed to be doing, they are not expected to be secure yet.
Yeah, our school does that, too. We use S / P / N / BL, where you ought to be at S by the end of the year. But even if a kid knows all the material they need to know at the end, they only get a P (progressing) for interim grades. For reading, there are checkboxes for below / at / above grade level, but no one is ever allowed to have above grade level checked. In both cases, I've been told that it's a district-wide mandate.