diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetControlFlowGraphTraverser.java b/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetControlFlowGraphTraverser.java
index 05171e2ad95..d9b090ff885 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetControlFlowGraphTraverser.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetControlFlowGraphTraverser.java
@@ -36,7 +36,8 @@ public class JetControlFlowGraphTraverser<D> {
             D initialDataValueForEnterInstruction,
             boolean straightDirection) {
         initializeDataMap(pseudocode, initialDataValue);
-        dataMap.put(pseudocode.getEnterInstruction(), Pair.create(initialDataValueForEnterInstruction, initialDataValueForEnterInstruction));
+        dataMap.put(straightDirection ? pseudocode.getEnterInstruction() : pseudocode.getSinkInstruction(),
+                    Pair.create(initialDataValueForEnterInstruction, initialDataValueForEnterInstruction));
 
         boolean[] changed = new boolean[1];
         changed[0] = true;
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java b/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
index 0af3af13785..426048e91fb 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/cfg/JetFlowInformationProvider.java
@@ -5,6 +5,7 @@ import com.google.common.collect.Maps;
 import com.google.common.collect.Sets;
 import com.intellij.openapi.util.Pair;
 import com.intellij.psi.PsiElement;
+import com.intellij.psi.tree.IElementType;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
 import org.jetbrains.jet.lang.cfg.pseudocode.*;
@@ -274,7 +275,7 @@ public class JetFlowInformationProvider {
                         boolean hasInitializer = !possiblePoints.isEmpty() || enterInitializationPoints.isInitialized();
                         if (possiblePoints.size() == 1) {
                             JetElement initializer = possiblePoints.iterator().next();
-                            if (initializer == element.getParent()) {
+                            if (initializer instanceof JetProperty && initializer == element.getParent()) {
                                 hasInitializer = false;
                             }
                         }
@@ -402,13 +403,73 @@ public class JetFlowInformationProvider {
         for (VariableDescriptor declaredVariable : declaredVariables) {
             if (!usedVariables.contains(declaredVariable)) {
                 PsiElement element = trace.get(BindingContext.DESCRIPTOR_TO_DECLARATION, declaredVariable);
-                if (element instanceof JetProperty) {
+                if (element instanceof JetProperty && JetPsiUtil.isLocal((JetProperty) element)) {
                     PsiElement nameIdentifier = ((JetProperty) element).getNameIdentifier();
                     PsiElement elementToMark = nameIdentifier != null ? nameIdentifier : element;
                     trace.report(Errors.UNUSED_VARIABLE.on((JetProperty)element, elementToMark, declaredVariable));
                 }
             }
         }
+
+        markUnusedValues(subroutine, pseudocode, declaredVariables);
+    }
+
+    private void markUnusedValues(@NotNull JetElement subroutine, Pseudocode pseudocode, final Collection<VariableDescriptor> declaredVariables) {
+        JetControlFlowGraphTraverser<Set<VariableDescriptor>> traverser = JetControlFlowGraphTraverser.create(pseudocode, true);
+        traverser.collectInformationFromInstructionGraph(new JetControlFlowGraphTraverser.InstructionsMergeStrategy<Set<VariableDescriptor>>() {
+            @Override
+            public Pair<Set<VariableDescriptor>, Set<VariableDescriptor>> execute(Instruction instruction, @NotNull Collection<Set<VariableDescriptor>> incomingEdgesData) {
+                Set<VariableDescriptor> enterResult = Sets.newHashSet();
+                for (Set<VariableDescriptor> edgeData : incomingEdgesData) {
+                    enterResult.addAll(edgeData);
+                }
+                Set<VariableDescriptor> exitResult = Sets.newHashSet(enterResult);
+                if (instruction instanceof ReadValueInstruction) {
+                    VariableDescriptor variableDescriptor = extractVariableDescriptorIfAny(instruction, true);
+                    if (variableDescriptor != null) {
+                        exitResult.add(variableDescriptor);
+                    }
+                }
+                else if (instruction instanceof WriteValueInstruction) {
+                    VariableDescriptor variableDescriptor = extractVariableDescriptorIfAny(instruction, true);
+                    if (variableDescriptor != null) {
+                        exitResult.remove(variableDescriptor);
+                    }
+                }
+                return new Pair<Set<VariableDescriptor>, Set<VariableDescriptor>>(enterResult, exitResult);
+            }
+        }, Collections.<VariableDescriptor>emptySet(), Collections.<VariableDescriptor>emptySet(), false);
+        traverser.traverseAndAnalyzeInstructionGraph(new JetControlFlowGraphTraverser.InstructionDataAnalyzeStrategy<Set<VariableDescriptor>>() {
+            @Override
+            public void execute(Instruction instruction, @Nullable Set<VariableDescriptor> enterData, @Nullable Set<VariableDescriptor> exitData) {
+                assert enterData != null && exitData != null;
+                if (instruction instanceof WriteValueInstruction) {
+                    VariableDescriptor variableDescriptor = extractVariableDescriptorIfAny(instruction, false);
+                    if (variableDescriptor != null && declaredVariables.contains(variableDescriptor)) {
+                        if (!enterData.contains(variableDescriptor)) {
+                            PsiElement variableDeclarationElement = trace.get(BindingContext.DESCRIPTOR_TO_DECLARATION, variableDescriptor);
+                            assert variableDeclarationElement instanceof JetProperty || variableDeclarationElement instanceof JetParameter;
+                            boolean isLocal = !(variableDeclarationElement instanceof JetProperty) || JetPsiUtil.isLocal((JetProperty) variableDeclarationElement);
+                            if (isLocal) {
+                                JetElement element = ((WriteValueInstruction) instruction).getElement();
+                                if (element instanceof JetBinaryExpression && ((JetBinaryExpression) element).getOperationToken() == JetTokens.EQ) {
+                                    JetExpression right = ((JetBinaryExpression) element).getRight();
+                                    if (right != null) {
+                                        trace.report(Errors.UNUSED_VALUE.on(right, right, variableDescriptor));
+                                    }
+                                }
+                                else if (element instanceof JetPostfixExpression) {
+                                    IElementType operationToken = ((JetPostfixExpression) element).getOperationSign().getReferencedNameElementType();
+                                    if (operationToken == JetTokens.PLUSPLUS || operationToken == JetTokens.MINUSMINUS) {
+                                        trace.report(Errors.UNUSED_CHANGED_VALUE.on(element, element));
+                                    }
+                                }
+                            }
+                        }
+                    }
+                }
+            }
+        });
     }
 
     @Nullable
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/Errors.java b/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/Errors.java
index da7edd9d6fe..98f7f7d5d69 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/Errors.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/Errors.java
@@ -145,6 +145,19 @@ public interface Errors {
 
     PsiElementOnlyDiagnosticFactory1<JetSimpleNameExpression, DeclarationDescriptor> UNINITIALIZED_VARIABLE = PsiElementOnlyDiagnosticFactory1.create(ERROR, "Variable ''{0}'' must be initialized", NAME);
     PsiElementOnlyDiagnosticFactory1<JetProperty, DeclarationDescriptor> UNUSED_VARIABLE = PsiElementOnlyDiagnosticFactory1.create(WARNING, "Variable ''{0}'' is never used", NAME);
+    PsiElementOnlyDiagnosticFactory2<JetElement, JetElement, DeclarationDescriptor> UNUSED_VALUE = new PsiElementOnlyDiagnosticFactory2<JetElement, JetElement, DeclarationDescriptor>(WARNING, "The value ''{0}'' assigned to ''{1}'' is never used", NAME) {
+        @Override
+        protected String makeMessageForA(@NotNull JetElement element) {
+            return element.getText();
+        }
+    };
+    PsiElementOnlyDiagnosticFactory1<JetElement, JetElement> UNUSED_CHANGED_VALUE = new PsiElementOnlyDiagnosticFactory1<JetElement, JetElement>(WARNING, "The value changed at ''{0}'' is never used", NAME) {
+        @Override
+        protected String makeMessageFor(JetElement argument) {
+            return argument.getText();
+        }
+    };
+
     PsiElementOnlyDiagnosticFactory2<JetExpression, DeclarationDescriptor, JetProperty[]> VAL_REASSIGNMENT = new PsiElementOnlyDiagnosticFactory2<JetExpression, DeclarationDescriptor, JetProperty[]>(ERROR, "Val can not be reassigned", NAME) {
         @NotNull
         @Override
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetPsiUtil.java b/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetPsiUtil.java
index 353ea233095..0fb77fc8703 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetPsiUtil.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/psi/JetPsiUtil.java
@@ -1,6 +1,7 @@
 package org.jetbrains.jet.lang.psi;
 
 import com.intellij.psi.PsiElement;
+import com.intellij.psi.util.PsiTreeUtil;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
 import org.jetbrains.jet.lexer.JetTokens;
@@ -102,4 +103,17 @@ public class JetPsiUtil {
             return unquoteIdentifier(quoted);
         }
     }
+
+    public static boolean isLocal(@NotNull JetProperty property) {
+        JetClassOrObject classOrObject = PsiTreeUtil.getParentOfType(property, JetClassOrObject.class);
+        JetDeclarationWithBody function = PsiTreeUtil.getParentOfType(property, JetDeclarationWithBody.class);
+        if (function != null && PsiTreeUtil.isAncestor(classOrObject, function, false)) {
+            return true;
+        }
+        if (classOrObject != null && PsiTreeUtil.isAncestor(function, classOrObject, false)) {
+            return false;
+        }
+        if (function != null) return true;
+        return false;
+    }
 }
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/ControlFlowAnalyzer.java b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/ControlFlowAnalyzer.java
index c8fbeafee31..96d09dce0bc 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/resolve/ControlFlowAnalyzer.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/resolve/ControlFlowAnalyzer.java
@@ -84,6 +84,6 @@ public class ControlFlowAnalyzer {
 
         flowInformationProvider.markUninitializedVariables(function.asElement(), false, inLocalDeclaration);
 
-//        flowInformationProvider.markUnusedVariables(function.asElement());
+        flowInformationProvider.markUnusedVariables(function.asElement());
     }
 }
diff --git a/idea/src/org/jetbrains/jet/plugin/annotations/JetPsiChecker.java b/idea/src/org/jetbrains/jet/plugin/annotations/JetPsiChecker.java
index 17353d877d8..09f872108fc 100644
--- a/idea/src/org/jetbrains/jet/plugin/annotations/JetPsiChecker.java
+++ b/idea/src/org/jetbrains/jet/plugin/annotations/JetPsiChecker.java
@@ -88,6 +88,9 @@ public class JetPsiChecker implements Annotator {
                         }
                         else if (diagnostic.getSeverity() == Severity.WARNING) {
                             annotation = holder.createWarningAnnotation(diagnostic.getFactory().getTextRange(diagnostic), getMessage(diagnostic));
+                            if (diagnostic.getFactory() == Errors.UNUSED_VARIABLE) {
+                                annotation.setHighlightType(ProblemHighlightType.LIKE_UNUSED_SYMBOL);
+                            }
                         }
                         if (annotation != null) {
                             if (diagnostic instanceof DiagnosticWithPsiElementImpl && diagnostic.getFactory() instanceof PsiElementOnlyDiagnosticFactory) {