No, they don't have to be reading when entering K. At our K orientation, the principle said that they would meet your child where he was in skills and go from there. Here are the recommended skills upon entering K from the K handbook - page 8.
http://www.fcps.edu/cco/pubs/handbook.pdf
Oral Language, Reading, Writing
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Says his or her first name.
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Follows simple instructions.
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Begins to share thoughts and opinions.
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Answers simple questions.
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Listens to stories read each day.
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Recites some nursery rhymes.
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Retells a familiar event or story.
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Participates in word play (cat, fat, mat).
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Identifies some colors.
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Discusses a favorite story.
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Talks about pictures.
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Pretends to read a boo