The report server database can be upgraded automatically or manually.

• Setup will upgrade a report server database automatically if you are running a default configuration and the report server database is installed locally.
  
• Setup can also upgrade a report server database automatically if you run Setup from the command prompt. If the report server database is installed on a remote SQL Server instance, or runs on a different named instance on the same computer, you can run Setup from the command prompt and use the RSUPGRADEDATABASEACCOUNT and RSUPGRADEPASSWORD arguments to specify credentials that have permission to update the schema.
  
• You can manually upgrade any report server database regardless of whether it runs locally or on a remote server. To upgrade a report server database manually, use the Reporting Services Configuration tool. An upgrade option on the Database Setup page runs a script that updates the schema to the most recent version.
  

If you are upgrading a Reporting Services installation that includes a remote report server database, you might encounter problems when upgrading the database schema. By default, Setup uses the security token of the user who is running the Setup program to connect to the remote SQL Server instance and update the schema. If you have administrator permissions on both the local and remote computer, the database upgrade will succeed. Similarly, if you run Setup from the command prompt and specify the RSUPGRADEDATABASEACCOUNT and RSUPGRADEPASSWORD arguments for an account that has permission to modify the schema on the remote computer, the database upgrade will succeed. However, if you do not have permission to update the schema on the remote computer, the connection will be refused with the following error:

"Setup was not able to upgrade the report server database schema. You must update the database schema manually after setup is finished. To update the schema, run the Reporting Services Configuration tool, open the Database Setup page, and click Upgrade. For more information, see article 91310 in the Microsoft Knowledge Base."

The report server program files will be upgraded, but the report server database will be in the format of the previous version. The report server will be unavailable while the report server database is in the older format.