I don't know if there's any scientific basis for this test, but a friend working in China swears by it. The only instruction for the student is to repeat what you have said. Begin with a very simple sentence.
There is a black cat.
If the student can say it, go on to make the sentence a little more complex in some pre-determined way. For example, adding more vocabulary or various parts of speech. After a few sentences, the student's comprehension ends and a grade is assigned.
What is being tested? Hearing, certainly, but also comprehension. As the sentences become a longer, the only way one can remember them is through a system, either a comprehension of grammar, a sense of visualization or extremely accurate memory for random sounds.
Production is also being tested at the same time... if you can't understand what's being said at a certain level, it puts them into the same class.
In any case, for a rough cut it's probably fine. I wouldn't like anyone's diploma to hang in the balance but, for the start of the term, it's probably okay, particularly if there's a mechanism for switching obviously misplaced students after a few class sessions.
It also has a great advantage as being the sort of test which is difficult to cheat on or which requires the kind of preparation that has little to do with English... despite being a necessary evil, like many other teachers I've suffered the rebukes of students who only want to study, for example, imitation TOEFL tests.
Or is life a TOEFL test?