1. In a large bowl, combine the sugar, butter until fully mixed together. Mix in the cream cheese, salt, almond and vanilla extracts, and egg yolk. Beat until smooth.
2. Stir in flour until well blended. Chill the dough for 2 hours, or overnight.
3. Preheat oven to 170°C. On a lightly floured surface, roll out the dough 1/3 at a time to 25mm thickness with lightly floured biscuit cutters. Place 2 to 3cm apart on ungreased baking trays. Bake for 7 to 10 minutes in the preheated oven, or until light and golden brown. Cool biscuits completely before icing.
4. To make the icing sift the icing sugar into a bowl. Using a wooden spoon, gradually stir in enough water until the mixture is the consistency of thick cream. Beat until white and smooth and thick enough to coat the back of the spoon. Mix in some colouring, if you like, and use immediately.
Tip: To flavour the icing try replacing the water with lemon or orange juice, or add a few drops of vanilla or almond extract.