I have a pet project that I am planning to release as open source at some point in the not-too-distant future. A couple of the files use or are mostly code that was taken from a project released under the New BSD License. While I have changed it to fit my needs and added some small stuff, the algorithm and the functionality is basically exactly the same.

I want to make sure that the author of the code gets credit and that the license is not broken, but I also want to make the reader aware that this is not the code as it was orignally released.

How should I approach this? Should I isolate the code as much as possible and just retain the original license? Maybe put all the files that contain foreign code in their own folder and add a readme explaining what has been added/removed?

There must have been tons of projects using other open source code. What is the standard approach to this?