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As part of my project, we are upgrading SQL Server 2008 R2 to SQL Server 2012. We have a separate SSRS 2008 instance running on a separate machine which interact with these existing 2008 database servers and create various reports.

My architect's recommended that we just create a new VM and get SQL Server 2012 with existing Data. (You install a new environment, copy your metadata and data to the new environment, and configure the new environment to use existing content.)

He suggested that we need not to make any changes to SSRS instance which is running on older version. He suggested just to re-use existing SSRS instance and point to new SQL Server 2012.

My question is about the feasibility of this solution. Will that work? Can you have SSRS instance running on older version but interacting with migrated SQL Db Server 2012 instance. Any challenges/possible issues?

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Your SSRS deployment just needs access to two databases ReportServer and ReportServerTempDB. It doesn't matter where they are hosted as long as they are accessible.

When you move these databases to the new server you will need to open Reporting Services Configuration Manager and redirect SSRS to the new SQL 2012 server. You can change the connection on the database tab.

If the connection test goes through OK then you should be ready to go.

One thing to make sure of is that all the logins from the old server are present on the new server before transferring the databases. If they are not the permissions for any missing users will be dropped.

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