you are right, this only handles the simplest case in which it expects 1:1 cable, anything other connection(or lack off) is considered wrong.
therefore no decoding is done on PIC, decision is left to user from displayed LED pattern (pic stops scan when any mismatch is found).
as with any oversimplified system, there is a hidden pitfall,
if all wires are short, all LEDs would be on and there would be no distinction with "OK" case where the MCU just scans perfect cable.
to do a full tester, it would take more effort, including constant manipulation of TRIS registers, case by case comparison and separate indication.
and that comes back to what you started...