diff --git a/python/src/com/jetbrains/python/psi/impl/PyParameterListImpl.java b/python/src/com/jetbrains/python/psi/impl/PyParameterListImpl.java
index a097c41995d2..ee1df4f3b38a 100644
--- a/python/src/com/jetbrains/python/psi/impl/PyParameterListImpl.java
+++ b/python/src/com/jetbrains/python/psi/impl/PyParameterListImpl.java
@@ -63,93 +63,29 @@ public class PyParameterListImpl extends PyBaseElementImpl<PyParameterListStub>
     return false;
   }
 
-  public boolean isCompatibleTo(@NotNull PyParameterList another) {
-    PyParameter[] parameters = getParameters();
-    final PyParameter[] anotherParameters = another.getParameters();
-    final int parametersLength = parameters.length;
-    final int anotherParametersLength = anotherParameters.length;
-    if (parametersLength == anotherParametersLength) {
-      if (hasPositionalContainer() == another.hasPositionalContainer() && hasKeywordContainer() == another.hasKeywordContainer()) {
-        return true;
-      }
+  public boolean isCompatibleTo(@NotNull PyParameterList other) {
+    PyParameter[] params = getParameters();
+    final PyParameter[] otherParams = other.getParameters();
+    if (hasPositionalContainer() || hasKeywordContainer()) {
+      return true;
     }
-
-    int i = 0;
-    int j = 0;
-    while (i < parametersLength && j < anotherParametersLength) {
-      PyParameter parameter = parameters[i];
-      PyParameter anotherParameter = anotherParameters[j];
-      if (parameter instanceof PyNamedParameter && anotherParameter instanceof PyNamedParameter) {
-        PyNamedParameter namedParameter = (PyNamedParameter)parameter;
-        PyNamedParameter anotherNamedParameter = (PyNamedParameter)anotherParameter;
-
-        if (namedParameter.isPositionalContainer()) {
-          while (j < anotherParametersLength
-                 && !anotherNamedParameter.isPositionalContainer()
-                 && !anotherNamedParameter.isKeywordContainer()) {
-            anotherParameter = anotherParameters[j++];
-            anotherNamedParameter = (PyNamedParameter) anotherParameter;
-          }
-          ++i;
-          continue;
-        }
-
-        if (anotherNamedParameter.isPositionalContainer()) {
-          while (i < parametersLength
-                 && !namedParameter.isPositionalContainer()
-                 && !namedParameter.isKeywordContainer()) {
-            parameter = parameters[i++];
-            namedParameter = (PyNamedParameter) parameter;
-          }
-          ++j;
-          continue;
-        }
-
-        if (namedParameter.isKeywordContainer() || anotherNamedParameter.isKeywordContainer()) {
-          break;
-        }
+    final PyFunction otherFunction = other.getContainingFunction();
+    final boolean otherHasArgs = other.hasPositionalContainer();
+    final boolean otherHasKwargs = other.hasKeywordContainer();
+    if (otherHasArgs || otherHasKwargs) {
+      int specialParamsCount = 0;
+      if (otherHasArgs) {
+        specialParamsCount++;
       }
-
-      // both are simple parameters
-      ++i;
-      ++j;
-    }
-
-    if (i < parametersLength) {
-      if (parameters[i] instanceof PyNamedParameter) {
-        final PyNamedParameter nextParameter = (PyNamedParameter)parameters[i];
-        if (nextParameter.isKeywordContainer() || nextParameter.isPositionalContainer()) {
-          ++i;
-        }
-        while (nextParameter.isKeywordContainer() && j<anotherParametersLength && anotherParameters[j].hasDefaultValue()) {
-          j++;
-        }
+      if (otherHasKwargs) {
+        specialParamsCount++;
       }
-    }
-
-    if (j < anotherParametersLength) {
-      if (anotherParameters[j] instanceof PyNamedParameter) {
-        final PyNamedParameter nextParameter = (PyNamedParameter)anotherParameters[j];
-        if (nextParameter.isKeywordContainer() || nextParameter.isPositionalContainer()) {
-          ++j;
-        }
-        while (nextParameter.isKeywordContainer() && i<parametersLength && parameters[i].hasDefaultValue()) {
-          i++;
-        }
+      if (otherFunction != null && otherFunction.asMethod() != null) {
+        specialParamsCount++;
       }
+      return otherParams.length == specialParamsCount;
     }
-    return (i >= parametersLength) && (j >= anotherParametersLength);
-    //
-    //if (weHaveStarred && parameters.length - 1 <= anotherParameters.length) {
-    //  if (weHaveDoubleStarred == anotherHasDoubleStarred) {
-    //    return true;
-    //  }
-    //}
-    //if ((anotherHasDoubleStarred && parameters.length == anotherParameters.length - 1)
-    //  || (weHaveDoubleStarred && parameters.length == anotherParameters.length + 1)) {
-    //  return true;
-    //}
-    //return false;
+    return params.length == otherParams.length;
   }
 
   @Override
diff --git a/python/testData/inspections/PyMethodOverridingInspection/expected.xml b/python/testData/inspections/PyMethodOverridingInspection/expected.xml
deleted file mode 100644
index 364ca8c654d8..000000000000
--- a/python/testData/inspections/PyMethodOverridingInspection/expected.xml
+++ /dev/null
@@ -1,18 +0,0 @@
-<?xml version="1.0" encoding="UTF-8"?>
-<problems>
-  <problem>
-    <file>method-overriding.py</file>
-    <line>10</line>
-    <description>Method signature does not match signature of base method</description>
-  </problem>
-  <problem>
-    <file>method-overriding.py</file>
-    <line>14</line>
-    <description>Method signature does not match signature of base method</description>
-  </problem>
-  <problem>
-    <file>method-overriding.py</file>
-    <line>46</line>
-    <description>Method signature does not match signature of base method</description>
-  </problem>
-</problems>
diff --git a/python/testData/inspections/PyMethodOverridingInspection/test.py b/python/testData/inspections/PyMethodOverridingInspection/test.py
new file mode 100644
index 000000000000..1ee30bab8e9e
--- /dev/null
+++ b/python/testData/inspections/PyMethodOverridingInspection/test.py
@@ -0,0 +1,105 @@
+class c1:
+    def foo(self, a):
+        pass
+
+class c2(c1):
+    def foo(self, *a):
+        pass
+
+class c3(c1):
+    def foo<warning descr="Method signature does not match signature of base method">(self)</warning>:
+        pass
+
+class c4(c1):
+    def foo(self, **a):
+        pass
+
+class c5(c1):
+    def foo(self, a):
+        pass
+
+class c6:
+    pass
+
+class c7(c6):
+    def foo(self):
+        pass
+
+class c8:
+    def __init__(self):
+        pass
+
+    def __new__(self):
+        pass
+
+    def foo(self, a):
+        pass
+
+
+class c9(c8):
+    def __init__(self, a): # different but ok because __init__ is special
+        pass
+
+    def __new__(self, p, q): # different but ok because __new__ is special
+        pass
+
+    def foo<warning descr="Method signature does not match signature of base method">(self, s, t)</warning>:
+        pass
+
+class c10:
+    def foo(self, a, b):
+        pass
+
+class c11(c10):
+    def foo(self, *b):
+        pass
+
+class c12(c4):
+    def foo(self):
+        pass
+
+class c13:
+    def foo(self, *args):
+        pass
+
+class c14(c13):
+    def foo(self):
+        pass
+
+class c15:                                    # PY-1083
+    def foo(self, x = 1):
+        pass
+
+class c16:
+    def foo(self, **kwargs):
+        pass
+
+
+# PY-6700
+class c17:
+    def foo(self, **kwargs):
+        pass
+
+class c18(c17):
+    def foo(self, arg1=None, **kwargs): # pass
+        pass
+
+class c19:
+    def foo(self, *args, **kwargs):
+        raise NotImplementedError()
+
+class c20(c19):
+    def foo(self): # pass
+        pass
+
+class c21(c19):
+    def foo(self, arg1): # pass
+        pass
+
+class c22:
+    def foo(self, arg1, *args, **kwargs):
+        raise NotImplementedError()
+
+class c23(c22):
+    def foo<warning descr="Method signature does not match signature of base method">(self, arg1, arg2=None)</warning>: # fail
+        pass
diff --git a/python/testSrc/com/jetbrains/python/PythonInspectionsTest.java b/python/testSrc/com/jetbrains/python/PythonInspectionsTest.java
index 2f229c9fa07f..8f63f47a57ab 100644
--- a/python/testSrc/com/jetbrains/python/PythonInspectionsTest.java
+++ b/python/testSrc/com/jetbrains/python/PythonInspectionsTest.java
@@ -70,7 +70,7 @@ public class PythonInspectionsTest extends PyTestCase {
 
   public void testPyMethodOverridingInspection() {
     LocalInspectionTool inspection = new PyMethodOverridingInspection();
-    doTest(getTestName(false), inspection);
+    doHighlightingTest(inspection);
   }
 
   public void testPyTrailingSemicolonInspection() {