Some words can not be easily sounded out because they do not follow the conventional letter-sound relationships - a child who attempts to sound out words like ONE and TWO will not arrive at the correct pronunciation. For these irregular words, the child will need additional information about correct pronunciation.
First a child learns to sound out words; then the child learns that when certain words are sounded out, they do not make sense. As we grow, and as we are exposed to more and more text, we learn new irregular words. As a child, you learned words like ONE, SHOE, and PEOPLE. As you read more, you learned words like CHOIR, COLONEL and ISLAND. Later still, you learned words like GEYSER, FEIGN, and BUREAU, and if you don't already know them, in the future, you may learn such words as SYNECDOCHE, BAREGE, and CACHET. In short, a person's ability to correctly read irregular words is directly related to their exposure to those words combined with information about the correct pronunciation (It is not uncommon for people to have read a word dozens of times, to know the meaning of that word, but to not know its correct pronunciation.).
Whereas a test of regular word reading (cipher knowledge) is strengthened by using words that the child is not familiar with, any test of irregular word reading (lexical knowledge) should use words that one could reasonably expect the child to be familiar with. This can be accomplished using leveled word lists, or by using words from previous vocabulary lessons, or by using words from the children's own leveled texts.
Once the words are chosen for an appropriate test of irregular word reading, the test can take one of several formats. The child can be asked to simply read the words aloud, or the child could be asked to find a word from a set that does not belong with the others (e.g. LINT, MINT, PINT). Similarly, the test might ask the student to find a rhyme for each regular word from a set (e.g. find the word that rhymes with CHOIR - CHAIR, CHORE, WIRE). Also, a test of irregular word reading could ask children to match pairs of words that have the same letter sounds (e.g. REIGN, SIGN, MINE).