The term 審査 Shinsa can be translated as many things: judging; inspection; examination; investigation; or review, but in general in the West it is looked on as meaning examination/test.
In the early days of budō in Japan and Okinawa, the teacher would simply say what level you were at and that was that so to speak, no formal examination or test... And, that is fine when it concerns 3-7 students training closely with the teacher. However, if we have 40 - 60 students in a dōjo then we need a method of recording who is at what level—enter shinsa...
Now, personally I believe shinsa to be a hinderance in budō and a blurry reference to the standard of the student. Yes, there must be a way of putting the student under pressure to see if they know their stuff? That I agree with — but most people are a nervous wreck at examinations and NO — it is not the same as a street conflict as there is no real adrenaline, fear and will-to-survive—and all those contribute to a far different scenario than that which the shinsa could give.
On a plus note, the student preparing for the shinsa will work diligently in the months prior to the shinsa and many will agree, the ikkyū (first kyū) student testing for Shodan (first black belt) will give one of the best performances of the lives! So, there are qualities of the exam/test that aid the teacher to see how the student is developing.
I cannot say the old method of 'teacher tells you what grade/rank you are' is a bad thing, as it is used in Shodō (Japanese Calligraphy), and many other Japanese based activities. And, we have already explored the reasons for the addition of the shinsa. I do however believe that teachers should not solely rely on shinsa outcome to judge the student as people can have 'off' days...
Food for thought I hope?