This answer submitted by virtualization expert Eric Siebert:
I’m guessing you’re running VMware ESX because you mention that 16 processors are being displayed, but I’m not sure what you are using to get this information. It sounds like your host server has a total of 16 cores, but a VM will only see the number of virtual CPUs that are assigned to it regardless of the number the host sees. For example if your VM has 2 vCPUs, the operating system and any applications running inside it will only see 2 vCPUs.
Now the VM may utilize different cores on this host server as the hypervisor schedules CPU time based on availability, but the VM will never have access to the equivalent of 2 vCPUs at any time. It is possible to pin the VM to always use specific cores, but this is not recommended as it makes it more difficult for the scheduler to schedule CPU time for other VMs. In addition, it prevents features like vMotion from working. If you are running Windows, look at the Task Manager and it will only show the number of vCPUs that the VM has. You can also use the System Information utility for this.
So the bottom line is that your auditors are looking at the number of CPUs on the host and not the VM. It sounds like they are not familiar with virtualization technology so they are not aware that the VM is limited to seeing the number of vCPUs that it has been assigned.
IBM’s licensing is virtualization friendly, unlike other vendors like Oracle who make you license the number of CPUs that a host may have regardless of how many the VM has. IBM uses processor value units to license their products. You can read more on their licensing below: