I am always getting reports for as saying his next step is to learn x when he has been able to do x for ages.
This is sort of what we have always had to deal with. The report would show mastery of counting to 20, but wouldn't be marked for mastery of counting to 50 or 100, even when they could easily do these things. The explanation we received was that the teacher hadn't taught those things yet, so they couldn't mark it on the report yet. How ridiculous!
We start actual grades in 3rd grade, so hopefully the OP is in a similar situation and next year there will be no more subjective grading for her DD.
Side note -
objective - "not influenced by personal feelings, interpretations, or prejudice; based on facts; unbiased: an objective opinion."
Even with (objective) actual grades this will not always stop some teachers from continuing to grade based on behaviors and perceived notions vs. the student proving they know the material. BTDT!